Cross-currency implied spreads

ABSTRACT

The disclosed systems and methods relate to allowing trading of over the counter (“OTC”) foreign exchange (“FX”) contracts on a centralized matching and clearing mechanism, such as that of the Chicago Mercantile Exchange&#39;s (“CME”&#39;s) futures exchange system (the “Exchange”). The disclosed systems and methods allow for anonymous transactions, centralized clearing, efficient settlement and the provision of risk management/credit screening mechanisms to lower risk, reduce transaction costs and improve the liquidity in the FX market place. In particular, the disclosed embodiments increase speed of execution facilitating growing demand for algorithmic trading, increased price transparency, lower cost of trading, customer to customer trading, and automated asset allocations, recurring trades as well as clearing and settlement efficiencies.

REFERENCE TO RELATED APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.12/858,853, filed Aug. 18, 2010, which is a continuation of U.S. patentapplication Ser. No. 11/600,993, filed Nov. 17, 2006, which claims thebenefit of priority from U.S. Provisional Application No. 60/738,246,filed Nov. 18, 2005. The disclosure of each of these applications isincorporated herein by reference.

COPYRIGHT NOTICE

A portion of the disclosure of this patent document contains materialwhich is subject to copyright protection. The copyright owner has noobjection to the facsimile reproduction by anyone of the patent documentor the patent disclosure, as it appears in the Patent and TrademarkOffice patent file or records, but otherwise reserves all copyrightrights whatsoever.

BACKGROUND

Futures Exchanges, referred to herein also as an “Exchange”, such as theChicago Mercantile Exchange Inc. (CME), provide a marketplace wherefutures and options on futures are traded. Futures is a term used todesignate all contracts covering the purchase and sale of financialinstruments or physical commodities for future delivery on a commodityfutures exchange. A futures contract is a legally binding agreement tobuy or sell a commodity at a specified price at a predetermined futuretime. Each futures contract is standardized and specifies commodity,quality, quantity, delivery date and settlement. An option is the right,but not the obligation, to sell or buy the underlying instrument (inthis case, a futures contract) at a specified price within a specifiedtime.

The foreign exchange market is the largest and most liquid financialmarket in the world, representing more than $1.2 trillion worth oftransactions each day. Also known as forex or FX, currency tradingtypically involves the simultaneous purchase of one currency whileselling another currency. Currencies are typically traded in pairs, suchas U.S. dollar/Japanese yen (USD/JPY) or Euro/U.S. dollar (EUR/USD), orvia currency indexes, such as the CME$INDEX™.

In order to capitalize on the foreign exchange market, CME also offersFX futures products, i.e. futures contracts where the underlyingfinancial instrument is a foreign currency transaction, in addition tofutures products based on other commodities and financial instruments.However, FX futures are not the only mechanisms by which foreigncurrencies may be traded. For example, the FX interbank market is aglobal network of the world's banks with no centralized location fortrading. Much of the business is conducted over the-phone orelectronically bank-to-bank. The FX market is a 24-hour-per-day marketduring the FX business week. The day starts in Asia, extends over toEurope and then into the U.S. daytime trading hours. Currencies aretraded around the world, around the clock, from Monday morning (Sundayafternoon Chicago/New York time) in New Zealand/Asia to the close of thebusiness week on Friday afternoon in Chicago/New York.

Over the Counter (“OTC”) is the term often used to refer to currencytrading instruments which are not classified as a “futures” instrumentas defined above and not traded on a futures exchange such as CME, i.e.that which is not a futures contract is an OTC contract. Such OTCcontracts include “forward” contracts, i.e. private agreements betweenbuyers and sellers, i.e. bilateral contracts, for the future delivery ofa commodity at an agreed price. While futures contracts are regulated bythe Commodity Futures Trading Commission (“CFTC”), forward or OTCcontracts are not so regulated, making them more flexible and anattractive device to certain investors and certain markets.

Speculators are active in the FX markets, as they are attracted to theopportunities that volatile and changing market conditions create. Amultitude of economic forces impact the world's currencies. Some of theforces at work include interest rate differentials, domestic moneysupply growth, comparative rates of inflation, central bank interventionand political stability. In times of global uncertainty, some currenciesmay benefit from perceived “flight-to-safety” status. Or, if onecountry's economic outlook is perceived as strong by market forces, itscurrency may be firmer than another country's currency, where economicor political conditions are viewed with caution.

FX traders include governments, corporations and fund managers doingbusiness with foreign countries, that need to exchange one currency foranother, and speculators who seek to profit from price movements in themarkets.

The highly liquid and volatile currency markets offer opportunities forspeculators every day. Most speculators tend to focus on the so-called“majors,” which are the most actively traded currencies and include theU.S. dollar, the euro, the Japanese yen, the British pound, the Swissfranc, the Australian dollar and the Canadian dollar.

While the OTC FX market offers advantages such as less regulation andmore product flexibility, CME's futures exchange offers its ownbenefits, such as centralized and anonymous matching and clearing, aswell as efficiency optimization and risk management/credit screeningmechanisms not available in the present OTC markets. It would thereforebe advantageous to be able to trade OTC FX products via the samemechanisms used to trade futures contracts in order to secure these samebenefits and protections.

Accordingly, there is a need for systems and methods to allow OTC FXproducts to be traded in a centralized matching and clearing environmentsuch as the environment utilized by CME's futures exchange.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 depicts a block diagram of an exemplary system for trading OTC FXinstruments according to the disclosed embodiments.

FIG. 2A shows a more detailed block diagram of the system of FIG. 1according to one embodiment.

FIG. 2B shows a more detailed block diagram of the system of FIG. 1according to an alternative embodiment.

FIG. 3 shows an exemplary screen display and price determination.

FIG. 4 shows an exemplary business message flow for the Directed RFQfunctionality for use with the disclosed embodiments.

FIGS. 5A-5G depict block diagrams of a Flexible Hybrid CentralCounter-party Cross-Margining or Cross Collateralization systemaccording to one embodiment.

FIG. 6 depicts a more detailed block diagram of the system of FIG. 1according to one embodiment.

FIG. 7 depicts flow charts showing the operations of the system of FIGS.1 and 6 according to one embodiment.

FIG. 8 depicts a block diagram of an exemplary system for trading OTC FXinstruments having a directed request for quote system according to thedisclosed embodiments.

FIG. 9 depicts a block diagram of one embodiment of a directed requestfor quote server for use with the system of FIG. 6.

FIG. 10 depicts a block diagram of an exemplary system for trading OTCFX instruments having a directed request for quote system according toan alternative embodiment.

FIG. 11 depicts a block diagram of an exemplary system of managing riskundertaken by market participants according to one embodiment.

FIG. 12 depicts a flow chart showing the operation of the system of FIG.11 according to one embodiment.

FIG. 13 depicts a block diagram of an exemplary system for providingintra-currency spreads according to one embodiment.

FIG. 14 depicts a flow chart showing the operation of the system of FIG.13 according to one embodiment.

FIG. 15 depicts a block diagram of an exemplary system for handlingintra-firm matches according to one embodiment.

FIG. 16 depicts a flow chart showing the operation of the system of FIG.15 according to one embodiment.

DETAILED DESCRIPTION OF THE DRAWINGS AND PRESENTLY PREFERRED EMBODIMENTS

The disclosed systems and methods relate to allowing trading of over thecounter (“OTC”) foreign exchange (“FX”) contracts on a centralizedmatching and clearing mechanism, such as that of the Chicago MercantileExchange's (“CME”'s) futures exchange system (the “Exchange”). Thedisclosed systems and methods allow for anonymous transactions,centralized clearing, efficient settlement and the provision of riskmanagement/credit screening mechanisms to lower risk, reduce transactioncosts and improve the liquidity in the FX market place. In particular,the disclosed embodiments increase speed of execution facilitatinggrowing demand for algorithmic trading, increased price transparency,lower cost of trading, customer to customer trading, and automated assetallocations, recurring trades as well as clearing and settlementefficiencies.

FIG. 1 shows a block diagram of an exemplary system 100 for trading OTCFX instruments according to the disclosed embodiments. The system 100 isessentially a network 102 coupling market participants 104 106,including traders 104 and market makers 106 with the Exchange 108.Herein, the phrase “coupled with” is defined to mean directly connectedto or indirectly connected through one or more intermediate components.Such intermediate components may include both hardware and softwarebased components. Further, to clarify the use in the pending claims andto hereby provide notice to the public, the phrases “at least one of<A>, <B>, . . . and <N>” or “at least one of <A>, <B>, <N>, orcombinations thereof” are defined by the Applicant in the broadestsense, superseding any other implied definitions herebefore orhereinafter unless expressly asserted by the Applicant to the contrary,to mean one or more elements selected from the group comprising A, B, .. . and N, that is to say, any combination of one or more of theelements A, B, . . . or N including any one element alone or incombination with one or more of the other elements which may alsoinclude, in combination, additional elements not listed. The Exchange108 provides the functions of matching 110 buy/sell transactions,clearing 112 those transactions, settling 114 those transactions andmanaging risk 116 among the market participants 104 106 and between themarket participants and the Exchange 108, as well as request-for-quotefunctionality 118, as is discussed in more detail below. FIGS. 2A and 2Bshow more detailed block diagrams of the logical architecture of thesystem 100 of FIG. 1. In particular, FIG. 2A shows a block diagram ofthe system 100 according to one embodiment in which the Exchange 108 isinterconnected with a second FX marketplace to allow existing FX marketparticipants to transact over the Exchange as described herein. In thisembodiment, the second FX marketplace is provided by Reuters. FIG. 2Bshows a block diagram of the system 100 according to a second embodimentin which the Exchange 108 further provides connectivity to existing FXmarket participants.

While the disclosed embodiments relate to the trading of OTC FXinstruments, the mechanisms and methods described herein are not limitedthereto and may be applied to any OTC product.

Typically, the Exchange 108 provides a “clearing house” which is adivision of the Exchange 108 through which all trades made must beconfirmed, matched and settled each day until offset or delivered. Theclearing house is an adjunct to the Exchange 108 responsible forsettling trading accounts, clearing trades, collecting and maintainingperformance bond funds, regulating delivery and reporting trading data.Essentially mitigating credit. Clearing is the procedure through whichthe Clearing House becomes buyer to each seller of a futures contract,and seller to each buyer, also referred to as a “novation,” and assumesresponsibility for protecting buyers and sellers from financial loss byassuring performance on each contract. This is effected through theclearing process, whereby transactions are matched. A clearing member isa firm qualified to clear trades through the Clearing House. In the caseof the CME's clearing house, all clearing members not specificallydesignated as Class B members are considered Class A clearing members.In the CME there are three categories of clearing members: 1) CMEclearing members, qualified to clear transactions for all commodities;2) IMM clearing members, qualified to clear trades for only IMM and IOMcommodities; and 3) IMM Class B clearing members, solely limited toconducting proprietary arbitrage in foreign currencies between a singleExchange-approved bank and the IMM and who must be guaranteed by one ormore Class A non-bank CME or IMM clearing member(s). Note that a“member” is a broker/trader registered with the Exchange. As will bediscussed below, in the disclosed embodiments, a new clearing memberclass may be introduced for the purposes of trading OTC FX, exclusivelyor along with other CME products, i.e. futures, as described herein. Itwill be appreciated that such classifications are implementationdependent.

In the presently disclosed embodiments, the Exchange 108 assumes anadditional role as the central intermediary in OTC FX transactions,i.e., the Exchange 108 will become the buyer to each seller and sellerto each buyer, and assume responsibility for protecting buyers andsellers from financial loss by assuring performance on each contract, asis done in futures transactions. As used herein, the term “Exchange” 108will refer to the centralized clearing and settlement mechanisms, riskmanagement systems, etc., as described below, used for futures trading,including the described enhancements to facilitate OTC FX transactions.By assuming this intermediary role and employing credit screening andrisk management mechanisms, parties previously not able to trade OTC FX,because for example they were credit screened out, may now tradeanonymously. In prior OTC FX markets, banks were the only sell-side totransactions. The presently disclosed embodiments permit traders to takeeither sell or buy-side positions and sell-side is no longer limited tobanks.

While the disclosed embodiments will be described in reference to theCME, it will be appreciated that these embodiments are applicable to anyExchange 108, including those which trade in equities and othersecurities. The CME Clearing House clears, settles and guarantees allmatched transactions in CME contracts occurring through its facilities.In addition, the CME Clearing House establishes and monitors financialrequirements for clearing members and conveys certain clearingprivileges in conjunction with the relevant exchange markets.

As an intermediary, the Exchange 108 bears a certain amount of risk ineach transaction that takes place. To that end, risk managementmechanisms protect the Exchange via the Clearing House. The ClearingHouse establishes clearing level performance bonds (margins) for all CMEproducts and establishes minimum performance bond requirements forcustomers of CME products. A performance bond, also referred to as amargin, is the funds that must be deposited by a customer with his orher broker, by a broker with a clearing member or by a clearing memberwith the Clearing House, for the purpose of insuring the broker orClearing House against loss on open futures or options contracts. Thisis not a part payment on a purchase. The performance bond helps toensure the financial integrity of brokers, clearing members and theExchange as a whole. The Performance Bond to Clearing House refers tothe minimum dollar deposit which is required by the Clearing House fromclearing members in accordance with their positions. Maintenance, ormaintenance margin, refers to a sum, usually smaller than the initialperformance bond, which must remain on deposit in the customer's accountfor any position at all times. The initial margin is the total amount ofmargin per contract required by the broker when a futures position isopened. A drop in funds below this level requires a deposit back to theinitial margin levels, i.e. a performance bond call. If a customer'sequity in any futures position drops to or under the maintenance levelbecause of adverse price action, the broker must issue a performancebond/margin call to restore the customer's equity. A performance bondcall, also referred to as a margin call, is a demand for additionalfunds to bring the customer's account back up to the initial performancebond level whenever adverse price movements cause the account to gobelow the maintenance. As will be discussed below, additionalfunctionality is provided in the disclosed embodiments to provide riskmanagement for OTC FX transactions.

The accounts of individual members, clearing firms and non-membercustomers doing business through CME must be carried and guaranteed tothe Clearing House by a clearing member. As mentioned above, in everymatched transaction executed through the Exchange's facilities, theClearing House is substituted as the buyer to the seller and the sellerto the buyer, with a clearing member assuming the opposite side of eachtransaction. The Clearing House is an operating division of the Exchange108, and all rights, obligations and/or liabilities of the ClearingHouse are rights, obligations and/or liabilities of CME. Clearingmembers assume full financial and performance responsibility for alltransactions executed through them and all positions they carry. TheClearing House, dealing exclusively with clearing members, holds eachclearing member accountable for every position it carries regardless ofwhether the position is being carried for the account of an individualmember, for the account of a non-member customer, or for the clearingmember's own account. Conversely, as the contra-side to every position,the Clearing House is held accountable to the clearing members for thenet settlement from all transactions on which it has been substituted asprovided in the Rules. As will be explained below, these mechanisms willbe augmented so as to handle OTC FX transactions.

More information about minimizing the risk to the Exchange 108 whilesimilarly minimizing the burden on members, approximating the requisiteperformance bond or margin requirement as closely as possible to theactual positions of the account at any given time and improving theaccuracy and flexibility of the mechanisms which estimate performancebond requirements, may be found in the following U.S. patentapplications, all of which are incorporated by reference herein:

-   U.S. patent application Ser. No. 11/030,815, “SYSTEM AND METHOD FOR    ACTIVITY BASED MARGINING”, filed Jan. 7, 2005, now U.S. Pat. No.    7,769,667;-   U.S. patent application Ser. No. 11/030,796, “SYSTEM AND METHOD FOR    EFFICIENTLY USING COLLATERAL FOR RISK OFFSET”, filed Jan. 7, 2005,    now U.S. Pat. No. 7,426,487;-   U.S. patent application Ser. No. 11/030,833, “SYSTEM AND METHOD FOR    ASYMMETRIC OFFSETS IN A RISK MANAGEMENT SYSTEM”, filed Jan. 7, 2005,    now U.S. Pat. No. 7,509,275;-   U.S. patent application Ser. No. 11/030,814, “SYSTEM AND METHOD FOR    DISPLAYING A COMBINED TRADING AND RISK MANAGEMENT GUI DISPLAY”,    filed Jan. 7, 2005, published as U.S. Patent Application Publication    No. US 2006/0059065 A1 pending;-   U.S. patent application Ser. No. 11/031,182, “SYSTEM AND METHOD FOR    FLEXIBLE SPREAD PARTICIPATION”, filed Jan. 7, 2005, now U.S. Pat.    No. 7,593,877-   U.S. patent application Ser. No. 11/030,869, “SYSTEM AND METHOD FOR    HYBRID SPREADING FOR RISK MANAGEMENT”, filed Jan. 7, 2005, now U.S.    Pat. No. 7,428,508; and-   U.S. patent application Ser. No. 11/030,849, “SYSTEM AND METHOD OF    MARGINING FIXED PAYOFF PRODUCTS”, filed Jan. 7, 2005, now U.S. Pat.    No. 7,430,539.

In the present OTC FX markets, liquidity and access to pricing isfragmented creating inefficiencies for market participants. Suchfragmentation is due in part to traditional reliance on bi-lateralcounterpart credit that compartmentalizes trading, as well as the legacyrole of banks as market makers to non-bank traders/firm. The centrallycleared marketplace for OTC FX provided by the disclosed embodimentspermits access to the best pricing, equal access for all marketsegments, and buy-side and sell-side, as well as operationalefficiencies, as will be discussed.

In bi-lateral trading, buyers and sellers essentially consummate dealson their own. Sellers must accept each buyer's credit, buyers sendpayment directly to each seller and buyers must accept each seller'sability to perform on the contract. If either party wishes to close outa deal prior to delivery, they must negotiate exclusively with theiroriginal counterparty. Such bi-latcral trading creates inefficienciesfor the FX buy-side. For example, bi-lateral trading creates inefficientpricing in that the market consists of multiple trading counterpartiesand the requirement to open and close positions with the same bank.Further, bi-lateral trading creates inefficient use of collateral, e.g.there may be requirements to place margin at several banks, and createsexcessive operational risk, e.g. multiple back-office confirmationrelationships.

Present FX trade settlement utilizes the Continuous Linked Settlement(“CLS”) Bank. Prior to the availability of the CLS Bank, FX tradesettlements resulted in separate currency payments between tradecounterparties, which incurred heightened risk that one party mightdefault, especially in view of time zone differences, also known as“Herstaat Risk.” The CLS Bank eliminates ‘temporal’ settlement risk bysettling both sides of dual currency payments by delivery-vs.-payment,thereby mitigating Herstaat Risk in daily settlements.

Straight-Through-Processing (“STP”) provides the benefits of reductionin errors during processing, acceleration of trade processing, real timerisk management, automated account allocations, and back office staffingefficiencies. However, in the present OTC FX markets, the benefits ofSTP are limited by lack of standardization and real time delivery ofboth electronic trade affirmations and trade confirmations.

The disclosed embodiments offer reduced cost of market access, andthereby better access to best-pricing, lower infrastructure supportcosts and easier and less costly trade execution, price and volumetransparency, efficient risk transfer, STP standardization and auditableprices and mark-to-market.

In particular, the disclosed embodiments feature centralized OTC FXexecution and clearing via a centralized matching and clearing platformaccessed, for example, via prime brokers/direct clearing. The disclosedsystems and methods may be used by institutional participants in the OTCFX markets, such as banks, asset managers, leveraged trading firms(hedge funds, CTA's, prop firms, etc.), and/or currency program andoverlay managers. The disclosed systems and methods may support OTC FXproducts, such as Spot, FX forward swap and FX options instruments. Thedisclosed systems and methods utilize trade matching technology as wellas graphic user interface (“GUI”) and application program interface(“API”) based methods of interaction. Further, a novel request for quoteprocess is provided. In the disclosed embodiments, clearing takes placevia the Exchange clearing house, such as the CME Clearing House. Dailysettlements may still occur utilizing the CLS bank but with addedefficiencies which will be discussed below. Collateralized riskmargining is also provided as will be discussed below. Further, OTC STPprotocols are supported.

The disclosed embodiments provide value for the buy-side of OTC FXtransactions. In particular, the disclosed systems and methods addresscustomer demand for increased FX market efficiencies, pre-trade, tradeand post-trade. For example, the disclosed embodiments provide access totrading lines and limits as well as audited and published FX price andvolume data. Further, access to best pricing is provided as well astrade anonymity, improved execution speed, access to a primary liquiditypool, and access to multiple FX products. In addition, real time STP isprovided as is efficient trade/position management via multi-lateralnetting. Further all trading styles are accommodated, such asalgorithmic trading, GUI/Keyboard trading and request for quote (“RFQ”)based trading.

On the sell-side, the disclosed embodiments further provide value tobanks. For example, they permit the ability to extend market makingactivities beyond the limits of bilateral credit relationships, e.g.trade with new customers, extend trading with existing customers, etc.Further, increased access to FX liquidity and accommodation of varioustrading styles is also provided. In addition, access to real time riskmanagement and STP is provided along with credit and settlement riskmitigation.

In at least one of the disclosed embodiments, a hybrid market model maybe provided which combines exchange central limit order book matchingand bilateral trading of the OTC market with expanded electronic,anonymous access and clearing. Alternatively, other embodiments mayprovide sub-sets of this functionality.

The disclosed embodiments support one or more of the following FXinstrument types: forwards, spot and swaps. Forwards refers to FXforward contracts that expire daily starting from tomorrow, i.e. the dayafter the transaction date, and running out for two years, for eachcurrency-pair. A “Spot” refers the Forward which expires in two daysafter the transaction date. A swap is essentially a calendar spread,i.e. the simultaneous purchase (sale) of contract(s) in a near deliverymonth (first leg) and the sale (purchase) of an equal number ofcontract(s) in a far delivery month of the same contract (second leg),where the first leg is a Spot and the second leg is a further outForward.

In one embodiment, a defined number of swap products are offeredincluding Spot against the following (37 in total, assuming it thestated day or next day thereafter which is not a holiday in eithercurrency):

-   -   Tomorrow—Tom Next (T/N)—The Swap which has a first Forward leg        expiring tomorrow and the next Forward leg as “Spot”    -   The day after tomorrow—Spot Next (S/N)    -   Swap Forwards at 1 week, 2 weeks, 3 weeks    -   Monthly Swap Forwards from 1 month through 24 months    -   Except if this date is on a weekend or a holiday in either        currency, go to the first preceding week date which is not a        holiday in either currency    -   Except if the spot value date is the last date of the month,        then go to the last week date of the N'th month following which        is not a holiday in either currency.    -   Swap Forwards at the 8 IMM dates over the next 2 years    -   Broken-Dated Swap—Any Swap which is not one of the pre-defined        Swaps above.        It will be appreciated that other product combinations may also        be offered.

Further, the disclosed embodiments utilize Daily Rolling Instrumentswherein the contract symbol used by the customers to reference a givenSwap or Spot does not change, day-to-day, but the Swap legs do changeeach day, i.e. the temporal references within the instrument are treatedas relative to the transaction date rather than being expressed inabsolute form thereby necessitating a significantly increased symbol setto reference them:

-   -   From the trader perspective, contract symbols for electronically        matched instruments are “generic”—Fill messages include the        value datcs and prices of each leg;    -   Instrument definitions would therefore include contract symbols        like “USDSPYSP” for Spot and “USDJPY1M” to specify the 1 month,        forward Swap.

Each day, new instruments are used:

-   -   Forward for the 2 year date    -   All Swap instruments are refreshed with new legs        The appropriate value dates for electronically matched contracts        are assigned by the system at match time and provided to the        user within the order entry/front office fill messages for each        leg. For Directed Request For Quote (“Directed RFQ” or “DRFQ”),        discussed in more detail below, users may enter the desired legs        for a Directed RFQ using generic contracts, with the requested        value dates. For example, a user wishing to do an RFQ for a        forward outright, i.e. an order to buy or sell only one specific        type of contract, with a specific value date should be able to        specify that, without having to specify a unique contract that        is associated internally with that value date.

Referring to FIG. 3, in one embodiment, the Spot leg price is themid-point between the bid/ask in the current Spot market or last tradedwithin a specific time period; the other Forward leg price is made basedon the Spot price plus the differential (e.g. “30” is a 0.0030differential between the Spot and the Forward leg).

If the mid-point between the bid/ask in the current Spot market isstale, settlement information may be used. If the spot market is notliquid and no market data is currently being produced, customers will bekept up to date with secondary sources to minimize unexpected resultswhen the leg price comes in. A business rule of having the Spot marketsregularly quoted by market makers may provided.

For some markets, the Swap does not use the Spot for that market, butrather an associated market. This is accomplished by doing a reciprocal(1/current-price) calculation of the spot, or spot mid-point in thatassociated market.

In the disclosed embodiments, for the purposes of determining the valuedate, value date conventions are employed. For example, the value-dateconvention for spot for USD/CAD is one business day and for all othersit is two business days. A value date is valid for a currency pair if itis a banking business day for both currencies of the pair. Trading mayphysically occur on any weekday. However, for trading occurring on anygiven weekday, the rule for taking holidays into account whendetermining the value date for “spot” trading on that weekday differsdepending on the currency in which the holiday occurs. For holidays inUSD, you need only one full working day before you can settle a spottrade. For example: Wednesday July 4th (US Independence Day), a USDholiday; Monday's spot trading in USD/JPY has value date Thursday(because Wednesday is a USD holiday); Tuesday's spot trading in USD/JPYalso has value date Thursday (because you only need one USD workingday). For holidays in currencies other than USD, two full working daysbefore settlement may be required. For example: Wednesday December 7th(Pearl Harbor Day), a JPY holiday; Monday's spot trading in USD/JPY hasvalue date Thursday (because Wednesday is a JPY holiday); Tuesday's spottrading in USD/JPY has value date Friday (because Wednesday is a JPYholiday and you need two full working days in JPY).

In the disclosed embodiments, support for the instruments listed inTable 1 is provided. It will be appreciated that the instrumentofferings may vary and are implementation dependent. In particular, theCentral Limit Order Book (“CLOB”) will support Spot and/or standardizedSwap forwards. The Directed RFQ mechanism, discussed in more detailbelow, will support Spot, Forwards (any date out to 2 years), Swapforwards (standardized cases), Broken-dated swaps, or combinationsthereof.

TABLE 1 Spot Swaps Number Number Spot Swap Tradable Tradable ContractsContracts Currency Quoted Trading Trading via via via Including PairShorthand In Unit Unit CLOB CLOB CLOB Forwards Euro- EUR/USD USD EUR USDx x 38 541 USD USD- USD/JPY JPY USD USD x x 38 541 Japanese Yen BritishGBP/USD USD GBP USD x x 38 541 Pound- USD Australian AUD/USD USD AUD USDx x 38 541 Dollar- USD USD- USD/CHF CHF USD USD x x 38 541 Swiss FrancUSD- USD/CAD CAD USD USD x x 38 541 Canadian Dollar Euro- EUR/JPY JPYEUR x 1 504 Japanese Yen Euro- EUR/GBP GBP EUR x 1 504 British PoundEuro- EUR/CIIF CIIF EUR x 1 504 Swiss Franc British GBP/JPY JPY GBP x 1504 Pound- Japanese Yen Japanese JPY/USD USD JPY x 37 541 Yen- USD SwissCHF/USD USD CHF x 37 541 Franc- USD Canadian CAD/USD USD CAD x 37 541Dollar- USD total 343 6885 * Swaps are not listed for the non-USDcurrency pairs.

In disclosed embodiments, three currency-pairs will have a secondarymarket for the alternate listing (e.g. a ¥/$ contract and a $/¥ contractwill both exist, as completely separate markets):

-   -   Japanese Yen    -   Swiss Franc    -   Canadian Dollar        Forward outright instruments will be quoted in terms of one        currency only (e.g. a $/¥ Forward is quoted in JPY, not USD).        Swap instruments will be quoted in differential.

In the disclosed embodiments, there are 10 currency pairs, but only 6with swaps defined. Contract sizes will be 1 million units of the basecurrency. Instruments tick in tenths, not quarters nor in a variabletick table (VTT).

With regard to daily value date roll-over, users need only be notifiedthat the value date has changed for the Spot and Swaps, rather than whatthe change is for each instrument. In one embodiment, users are notifiedas to what the current value dates are for each instrument. Participantscan request value dates for each instrument from the marketplace.

A new flag on the Instrument Definition market data message is provided(the MO, em-oh) which is available for use in this market. One exampleusage could be in the situation where each instrument was listedindividually. This flag could change daily for many of theseinstruments, as indicated by the “Tradable” flags in the table above.

In one embodiment, any of the listed forwards, while not on a centrallimit order book, may be traded via the Directed RFQ system (notedbelow). Traders may also use the Directed RFQ system to dynamicallycreate a Broken-dated Swap market consisting of those Swaps notpre-defined (i.e. those which have a non-standard forward leg). Thesemarkets are also not on a central limit order book.

It will be appreciated that the foregoing instrument definitions andconventions are implementation dependent and suitable modifications toaccommodate alternative instruments and conventions are contemplatedherein. For example, while it is advantageous to utilize existingproduct symbology and instrument standards in the FX market place today,other symbology or standards, now available or later developed, may alsobe used with the disclosed systems and methods.

To facilitate clearing of OTC FX products using the clearing andsettlement mechanism, the disclosed embodiments feature a new class ofclearing member for banks and prime brokers addition to existingClearing house members. Existing Exchange membership may be used totrade on this new market as well. Further, for the disclosedembodiments, only Institutional users will be permitted to use theplatform (no retail). Clearing firms will have to guarantee that theircustomers meet the established criteria for access. These criteria maybe based on capitalization. The same single risk pool will be used forthe safeguard system. In alternative embodiments, the marketparticipants may be defined differently.

With regard to market access, authorization may be required before orderentry can occur. Authorization should occur at the SubscriberAlias(originating location of the order) as well as the TraderID (orderoriginator) and/or Account (entity on behalf of which the order is beingsubmitted) level of granularity but may effect the registration process.In one embodiment, authorization occurs by TraderID and/or Account. Inone embodiment authorization is for the entire market rather thangranular to currency pair

The application of a central counterparty to OTC FX transactions permitsadditional functionality to be offered to OTC FX market participants. Inone embodiment, netting is provided which allows various FX positions tobe netted together for settlement rather than separately settled,thereby reducing the number of settlement transactions and theassociated transaction costs. The individual transactions are stilltracked and reported but the actual number of settlement transactions,for example, those sent to CLS, is reduced. In another embodiment,collateralization is provided which allows the value of an entity's FXaccount, which may change in value via debits and credits but not basedon the actual movement of value, to be used against that entity's marginrequirement of their futures trading account, thereby simplifying marginrequirements and reducing the overall burden.

In one embodiment, as shown in FIG. 2A, CME provides clearing andsettlement functionality while a separate market, such as Reuters,provides matching functionality and access to sell-side entities, suchas banks. In an alternate embodiment, as shown in FIG. 2B, CME providesmatching, clearing and settlement functionality. It will be appreciatedthat the division of functionality for in-taking, processing andcompleting a given transaction is implementation dependent.

In order to implement OTC FX within the clearing and settlementmechanisms of the Exchange, additional market functionality is needed,such as: match engine functionality; surveillance, market control andregistration functionality; RFQ functionality; market datafunctionality; trade data functionality; clearing/tradereporting/straight-through-processing (“STP”) functionality; feefunctionality; and front-end/distribution functionality.

In particular, the match engine matches up sell-side and buy-side ordersto complete trades. In one embodiment, the match engine utilizes afirst-in-first-out (“FIFO”) matching algorithm for Spot transactions anda FIFO with Lead Market Maker matching algorithm for Forward Swaptransactions. In this embodiment, simple market maker protection isprovided for Forward Swap transactions. Mass quoting is also permittedwith Forward Swap transactions.

In one embodiment, specific features are provided for forward swapmarkets. In particular, approximately 10 to 20 Market Makers aretargeted for the forward Swap markets, across all markets. Leg pricingfor swaps is done on a differential basis, given the derived spot priceand the swap differential.

In one embodiment, the allocation will respect the 1 million currencybase unit contract size (i.e. products trade in base units of 1million). The match engine is not required to have credit controls noris it required to track the position of traders. Traders must know thedelivery/value dates of all leg fills. This can be accomplished eithervia the fill notification, a daily instrument creation market datamessage, or some other standardized electronic means.

Traders need to get leg fill notifications with prices immediately aftera match. Accordingly, order entry leg messages back to the trader forforward swaps should reflect one Spot leg, with its associated valuedate, and a generic forward leg, with its associated value date. This istrue regardless of whether the messages are generated as the result ofan electronic match, or a Directed RFQ-based block trade. Further, orderentry leg messages back to the trader for Spot contracts should reflectthe generic Spot contract and its associated value date, regardless ofwhether the messages are generated as the result of an electronic match,or an Directed RFQ block trade. In addition, order entry leg messagesback to the trader for forward out-rights should reflect the genericforward outright, and it's associated value date. Note that suchmessages can only be the result of an execution from a Directed RFQblock trade, since forward out-rights will not be electronicallymatched.

The Trading Engine must produce information on a trade as to whether agiven side was the aggressor order (i.e. the non-resting order). This isfor the purposes of the fee functionality, discussed below.

Implied functionality, as discussed in more detail below, may also beprovided.

The matching engine may support one or more of the following ordertypes, or combinations thereof:

-   -   Fill and Kill (“FAK”) & Limit orders;    -   RFQ for quantity will be available for those markets which are        traded in a central limit order book;    -   Stop Orders and Stop Price Logic;    -   Good Til Cancel (“GTC”) order types;    -   Good Til Day (“GTD”) order types;    -   Block trades;

The match engine may also provide consolidated fill reporting(front-office, back-office, and market data)

The Match Event/Trade Report to Clearing may need to include informationabout the entire spread. This will require either using the D1 message(as well as the MD from the Match Engine to Clearing, or a newinterface/message altogether. See the Section below onClearing/Settlement for more information.

In one embodiment, the market will operate in continuous trading allweek (24 hours×5.5 days), with existing trade date rollover daily:

-   -   Markets open at 11:45 AM Chicago time on Sunday for a Monday        trade date. There may be no trade date rollover at 4:00 PM on        Sunday;    -   Markets close weekly at 4:00 PM on Friday;    -   There is no maintenance window from 4:00 PM to 5:00 PM. There        may be no IOP-like opening state;    -   The cutoff to the next trading day occurs at 4 PM Chicago time        (5 pm New York time);    -   Markets are open on most normal holidays;    -   All orders remain on book. On trade date rollover the legs of        that Swap are redefined (perhaps as an entirely new market, but        with the same External ID/Contract Symbol); and    -   If there is open interest in a Swap or Spot market on trade date        rollover, the orders remain actionable in that “generic” market,        but if traded will have new leg forward instruments.

The Surveillance, Market Control & Registration functionality providesaudit, security and authentication services. In one embodiment, ordermanagement tools are provided such as CME's FirmSoft, which is abrowser-based order management tool that provides real-time visibilityinto working and filled orders, across multiple firm IDs, in the CME®Globex® Order Management database. Accessible through the CME portal(via the internet) or through a production connection to the CME Globexplatform, CME FirmSoft provides important alternative access to workingand filled orders during system failures

Globex Control Center (“GCC”) must have current capabilities providedwith Eagle/Ghost for Market Surveillance

a. Status/Cancel Working Orders

b. Status Mass Quotes

c. Status/Bust Trades

d. Status Blocks

e. Plus:

-   -   1. Surveillance by value-date    -   2. Agent shall use single Ghost instance to be able to perform        status across FX Marketplace and other CME markets    -   3. Status on Directed RFQ requests and responses can be done in        the same way as RFQ's are currently, but with information on        both parties available    -   4. Differences in terms & convention between the end trader &        GCC need to be taken into account for all tools (generic        instruments, value dates, etc)

The system may make available the following audit reports

-   -   Order & trade activity—overall and per market    -   Directed RFQ request and response activity—overall and per        market    -   A given Market Maker's activity in the above

The Exchange will control the account numbers that are authorized inthis market and for or each new participant, a unique account number iscreated

The set of registration data that should be collected for thismarketplace is similar to existing data for other markets:

1. First Name

2. Last Name

3. Date of Birth

4. Social Security #

5. Work Phone

6. Work fax (mandatory)

7. Email (mandatory)

8. Mobile Phone

9. City of birth

10. Secondary School

11. Trader ID(s) authorized

12. Account #s (new addition but see below already part of TeleStat)

13. Interfaces used

-   -   a. iLink 2    -   b. EOS    -   c. Globex trader    -   d. Firmsoft    -   e. FX Marketplace

14. Contact type

-   -   a. Technical    -   b. Market    -   c. Firm Admin Primary    -   d. Firm Admin Secondary

15. TeleStat

-   -   a. Security Question    -   b. Security Answer    -   c. Trading Address        -   i. City        -   ii. Country        -   iii. State    -   d. Tag 50/Sender Sub ID    -   c. Firm and Account # Combinations

16. Authorized Contact Signature

17. Clearing Firm Representation and Agreement

-   -   a. Name of clearing firm    -   b. signature of officer    -   c. name of officer    -   d. title    -   e. date

18. Customer Representation and Agreement

-   -   a. name of customer    -   b. signature of officer    -   c. printed name of officer    -   d. title    -   e. date

The FX Marketplace may require an error trade policy that will beadministered by the Globex Control Center (“GCC”). Existing error tradetools may be used. GCC should have current capabilities provided by ETPplus, as information about the spread will be passed to clearing, theETP system should allow inquiry based on this criteria

The Clearing House will provide each day the most economicallyappropriate end of day settlement prices need to be determined for opencontracts, with no need for operations or GCC support.

FIG. 6 shows a more detailed block diagram of the system 100 of FIG. 1according to one embodiment. As was described above, the marketparticipants, e.g. traders 104 and market makers 106, interact with theExchange 108 to match 110, clear, 112 and settle 114, transactions. Riskmanagement functionality 116 is provided which monitors and managesmargin requirements, etc., as was described above, to manage andmitigate the risk undertaken by the Exchange 108 and the marketparticipants 104/106 ensuring a stable market. The Exchange 108 furtherincludes one or more account databases 120 which store recordsreflecting, tracking and/or recording the transactions undertaken by themarket participants 104/106 and/or the results thereof. For example, asa market participant 104/106 places orders, completes transactions orotherwise creates positions 620, 622, i.e. matches, settles and clearstrades, the account database(s) are updated to reflect thosetransactions and/or positions 620, 622, thereby allowing the associatedmarket participant 104/106, as well as the Exchange, to audit, accountfor, and manage trading activity.

In one embodiment, a futures account database 602 is provided whichmaintains account records 606 for market participants 104/106 related totheir trading activity of futures instruments. Further, a separate FXaccount database 604 is provided which maintains account records 608 formarket participants 104/106 related to their trading activity of FXinstruments. It will be appreciated, that while the databases 602, 604may be logically distinct, they may be implemented in a single storagemedium and/or data structure and that such arrangements areimplementation dependent and may be further subject to regulatorycontrol.

As discussed above, by acting as an intermediary between marketparticipants 104/106 for the transaction of FX instruments, the Exchange108 obviates many of the requirements of a bilateral system of trading.In particular, the Exchange novates itself into the transactions betweenthe market participants, i.e. splits a given transaction between theparties into two separate transactions where the Exchange substitutesitself as the counterparty to each of the parties for that part of thetransaction, sometimes referred to as a novation. In this way, theExchange acts as a guarantor and central counterparty and there is noneed for the market participants 104/106 to disclose their identities orsubject themselves to credit or other investigations by a potentialcounterparty. For example, the Exchange insulates one market participantfrom the default by another market participant. Market participants104/106 need only meet the requirements of the Exchange 108. Anonymityamong the market participants 104/106 encourages a more liquid marketenvironment as there are lower barriers to participation.

In addition, by acting as an intermediary, the Exchange 108 is able toprovide additional functionality that may not be available in bilateralcontracting situations. In one embodiment, the Exchange 108 provides anetting processor 610 coupled with the FX account database 604 whichanalyzes and/or correlates the various positions 620 within a givenaccount 608 to automatically recognize and/or net positions 620 togetherwhere applicable. For example, when a particular market participant104/106 holds positions 620 which are offsetting with respect to oneanother, those positions 620 may be netted together. Such netting mayreduce and/or eliminate a particular obligation associated with aposition 620, thereby reducing the number of settlement transactionsthat the market participant 104/106 must engage in at the time ofsettlement. In a bilateral trading environment, offsetting positions 620may not be netted together as they may be held with respect to differentcounterparties, possibly under different contractual conditions.Accordingly, the market participant 104/106, in a bilateral tradingenvironment, must settle each position 620 individually. Effectively,the Exchange's role as a central counterparty to transactionsconsolidates the transacting parties to just the Exchange and thetransacting market participant thereby allowing any correlation andsubsequent netting of positions to be performed independent of themarket participant engaging in the counter-transaction or holding thecounter position. With respect to the transactions themselves, the netresult between the bilateral environment and the central counterpartyenvironment of the disclosed embodiments may be the same once allpositions have been settled or otherwise reconciled. However, there areassociated costs with each settlement transaction. Accordingly, byreducing the number of settlement transactions, the transaction costs inthe central counterparty system of the disclosed embodiments are reducedas compared with the costs incurred in the bilateral environment.

In yet another embodiment, the Exchange 108 provides a Collateralprocessor 616 which is operative to determine a collateral value 614 ofa given FX account 608 of a market participant 104/106 and provide thiscollateral value 614 to the risk management functionality 116, such as arisk processor, of the Exchange 108 to be used in offsetting the marginrequirement 618 of that market participant's 104/106 Futures account606. This is referred to as collateralization. In particular, a given FXaccount 608 will have both a monetized risk value 612 and a collateralvalue 614 associated with it. The monetized risk value 612 is themonetary value of risk associated with all of the positions 620 in theaccount. The monetized risk value 612 may be computed similarly to themargin requirement of a future account as has been described. Assumingthere has been no collateralization yet of the particular account 608,the collateral value 614 represents the amount of the monetized riskvalue 612 that the Exchange 108 is willing to allow the marketparticipant 104/106 to pledge against the margin requirement of theirFutures account 606. Initially, the collateral value 614 may equal themonetized risk value 612 or may be slightly less, accounting for a“haircut” reduction to prevent the market participant from pledging theentire value of the account 608. On a periodic basis, as was discussedabove, the Exchange's 108 risk management functionality 116 calculatesthe margin requirement 618 of the market participant's futures account606 based on the positions 622 held within the account 606. Once themargin requirement 618 has been computed, the market participant 104/106may then be permitted to pledge the some or all of the availablecollateral value 614 of their FX account 608 to reduce the marginrequirement. Where the collateral value 614 exceeds the marginrequirement 618, the margin requirement 618 may thereby be satisfied andthe collateral value 614 is reduced by the amount pledged. Thisremaining collateral value may be available to be used against futurerequirements. However, where the collateral value 614 does not satisfythe margin requirement 618, the margin requirement 618 and collateralvalue 614 is reduced accordingly and a reduced margin requirement 618 ispresented, e.g. a margin call, to the market participant for appropriatesatisfaction. As the positions 620 of the account 608 may fluctuate withthe activity of the market, the monetized risk 612 and collateral 614values may similarly fluctuate. This fluctuation will further bereflected in the computation of the margin requirement 618. Overall,collateralization reduces the burden on the market participant 104, 106to meet the margin requirement 618 of his Futures account 606 byallowing them to leverage value that is already being held by theExchange 108.

It will be appreciated that the netting processor 610, collateralprocessor 616, as well as the other functionality of the Exchange 108,including the matching 110, clearing 112, settlement 114 and riskmanagement 116 functionality, may be implemented in hardware, softwareor a combination thereof. In particular, the exchange 108 may provide amatching processor 110, clearing processor 112, settlement processor 114and risk processor 116 to implement the disclosed functionality.Further, this functionality may be implemented in logic or computerprogram code stored in a memory and executable by one or more processorswhich may be directly or indirectly connected, such as via a network.

FIG. 7 depicts flow charts showing the operations of the system of FIGS.1 and 6 according to one embodiment. In particular, in one embodiment, amethod of trading financial instruments among a plurality of entities,i.e. market participants 104, 106, participating in a market isprovided, where the financial instruments include foreign exchangeinstruments. The method utilizes an intermediary, i.e. a centralcounterparty, which, in one embodiment, is an Exchange 108 such as theCME. The method includes recording, in a first account 608 associatedwith a first entity 104, 106 of the plurality of entities 104, 106, afirst plurality of positions 620 resulting from transactions related toone or more of the foreign exchange instruments (block 702). The methodfurther includes maintaining the first account by the intermediary 108(block 704) and receiving from the first entity 104, 106, by theintermediary 108, a request to transact in a particular foreign exchangeinstrument (block 706). In response thereto, the method further includesmatching the request to transact with a counter request received from asecond entity 104, 106 of the plurality of entities and facilitating anexchange of the particular foreign exchange instrument withoutidentifying the first and second entities to each other (block 708) andguaranteeing, by the intermediary, that neither the first nor secondentity will default on their request (block 710).

In an alternate embodiment, wherein the financial instruments furtherinclude futures instruments, the first account 606 may be characterized,based on the first plurality of positions 620, by a monetized risk value612 and a collateral value 614, the collateral value 614 representativeof the monetized risk value 612 less any value pledged as collateral. Inthis embodiment, the method may further include recording, in a secondaccount 606 associated with the first entity 104, 106, a secondplurality of positions 622 resulting from transactions related to one ormore of the futures instruments, the second account 606 beingcharacterized by a net position representative of the offset of one ormore of the second plurality of positions 622 against another one ormore of the second plurality of positions 622 (block 712). The methodmay further include computing a margin requirement 618 for the secondaccount 606 based on the net position (block 714) and receiving a pledgeof a portion of the collateral value of first account to cover themargin requirement of the second account (block 716). In addition,wherein the margin requirement is not satisfied by the pledged portionof the collateral value, the method may further include issuing a margincall to the first entity to fulfill the remaining margin requirement(block 718).

In yet another alternative embodiment, netting may be provided whereineach of the first plurality of positions is associated with anobligation subject to subsequent settlement. In particular, in thisembodiment, the method may further include recognizing a first one ormore obligations/positions which correlate with a second obligation(block 720) and combing those obligation to create a netobligation/position, whereby the second obligation/position may bereduced (block 722) and eliminating the second obligation where it isnullified (block 724), whereby fewer obligations/positions may remainfor subsequent settlement.

The disclosed embodiments also feature Directed Request For Quote(Directed “RFQ” or “DRFQ”) functionality. In particular, thisfunctionality permits anonymous and private requests for quote, i.e. therequest-recipient is unaware of the identity of the requestor butresponses are still routed back solely to the requestor. In prior OTC FXmarkets, transactions were bilateral, due to the need to manage creditrisk, and therefore the transacting parties were known to each other,thereby stifling some potential transactions. Parties needed to knoweach other so as to evaluate credit risk, etc. In the presentlydisclosed embodiments, the centralized clearing mechanism buffers thiscredit risk to the parties, as was described above, and permitstransacting parties to remain anonymous, with the clearing mechanismacting as the intermediary and risk buffer. Further, in prior RFQsystems, requests might be directed to particular market makers but theresponses thereto, i.e. actionable quotes, were broadcast back to themarket generally, increasing the risk/exposure of the responder. In thedisclosed Directed RFQ system, requests are anonymized and then routedto all of the market makers, or alternatively only to an appropriatesubset of market makers based on the interest profiles of the marketmakers and/or parameters of the request (discussed in more detailbelow). Responses/actionable quotes are then routed back only to therequestor rather than the entire market, thereby limiting the exposureof the actionable quotes and reducing the exposure of the responder(s).The automated nature of the disclosed system permits the request/quotetransactions to occur in parallel and at pace with the actual market inwhich the underlying products are being traded via the mechanismsavailable to all traders, thereby not inhibiting the participantsparticipating in the market. While the disclosed embodiments may bedescribed with respect to FX instruments, it will be appreciated thatthese embodiments are not limited thereto and my be utilized with otherinstruments such as futures or options instruments.

In one embodiment, the Directed RFQ functionality operates as follows:

-   -   1. A requestor wants to trade a specific amount of a particular        instrument through a Directed RFQ. In one embodiment, the        Directed RFQ communication includes size, price, side        (optional), notional amount, product (currency pair), delivery        date and Time to Live (“TTL”):        -   a. The specific size is can be down to the whole unit ($1)            is not constrained by the “contract size”;        -   b. Directed RFQ has a minimum and maximum quantity range,            defined by currency pair and product type. The minimum can            be lower than the contract size (1 million);        -   c. The front-end should be able to display the quantity            requested in terms of notional amount;        -   d. The trade is all-or-nothing between two            counter-parties—in one embodiment, partial fills are not            possible (but may be possible in alternative embodiments);        -   e. In one embodiment, any market participant can submit a            Directed RFQ;        -   f. In one embodiment, the requestor may specify sell-side or            buy-side with the system hiding this information from the            market makers;    -   2. A publicly distributed Directed RFQ is broadcast to all, or        alternatively, a subset of, market participants;        -   a. This initial Directed RFQ has auto-cancel functionality            known as a Time-To-Live (TTL), which may be entered by the            requestor or automatically generated;        -   b. The TTL is part of the public Directed RFQ and is sent            out over market data;        -   c. After the TTL expires, the initial Directed RFQ may be            cancelled;            -   i. In one embodiment, all Directed RFQ Responses which                have not been accepted are canceled;            -   ii. In one embodiment, no more Directed RFQ Reponses are                accepted;        -   3. The trading community responds to the public RFQ with a            Directed RFQ Response (new message type);            -   a. Any market participant may respond to the Directed                RFQ;            -   b. Each quote may have auto-cancel functionality known                as the Time-To-Live (“TTL”);            -   c. The TTL may be entered by the responder, as part of                the Directed RFQ Response, or automatically generated;            -   d. Expired responses receive cancel messages;            -   e. Responders can also cancel their quotes at any time;    -   4. A Directed RFQ system manages all Directed RFQ Responses it        receives;        -   a. These responses are not put into the public order book,            but are sent to the original requester only;        -   b. Only the Directed RFQ originator can observe Directed RFQ            Responses, along with the TTL associated with each response;        -   c. Each quote is anonymous—containing only the price and            TTL. In one embodiment, whether the request is a buy-side or            sell-side request may be omitted;    -   5. The Directed RFQ originator can select from any of the live        quotes in this private order book;        -   a. Once a quote is accepted, the Directed RFQ system then            automatically sends in a Privately Negotiated Trade            (“PNT”)/Block order for the exact notional amount, on behalf            of the two parties;        -   b. All other quotes are immediately cancelled. Cancel            messages to all other responders;        -   c. The Directed RFQ itself is “cancelled” and no more            Directed RFQ Responses will be accepted for it;    -   6. Both parties receive normal iLink & Clearing trade reports,        subject to the Consolidate Fill requirements below;        -   a. The system will optionally update the market volume and            other market data statistics, based on appropriate            configuration settings.

The Time to Live (“TTL”) parameter may be specified as an absolute timeof expiration, such as a set time, or a relative time, e.g. a durationmeasured from some common reference or origin. In one embodiment,transmission delays in the DRFQ, or in the responses thereto, areaccounted for in computing the TTL window and determining when responsesare properly received therein. In one embodiment, Global PositioningSystem (“GPS”) receivers or some other form of universal time reference,such as a network time reference, e.g. network time protocol (“NTP”), ateach point of transmission may be used to provide accurate timesynchronization and transmission delay detection. Alternatively, thesystem may ignore transmission delays, relying on a central time keepingmechanism as the ultimate arbiter.

In embodiments where Directed RFQ's are routed to only a select subsetof market makers, the selection may be based on trader and/or marketmaker profile information known to the system. Selective routing therebyminimizes quote traffic. In both a broadcast and selective routingenvironment, incentives may be put in place to encourage recipientmarket makers to respond to the Directed RFQ. Incentives may includetrading fee discounts or other incentives. Alternatively, penalties maybe implemented to penalize recipient market makers who fail to respond.Penalties may include fines, increased trading fees, tradingrestrictions or other penalties.

The Directed RFQ mechanism manages all Directed RFQ traffic through thesystem. In one embodiment, in-bound requests are received and a uniqueidentification number is generated and associated with the request, suchas in a log. For example, the request messages/packets, having aparticular data structure, may be received into a buffer storage whichholds the request for subsequent processing. A computer or other numbergenerator then generates a unique value which is concatenated orotherwise associated with the request, such as by being inserted intothe data structure. The Directed RFQ is then pushed out to the market,i.e. broadcast to the market makers, all or a subset thereof, utilizingthe identification number in place of the originator/requestor'sidentification information to identify the Directed RFQ. For example,the various data from the request data structure may be copied into anew message having a similar data structure including the uniqueidentification number but omitting the originator/requestor'sidentification information. The central system maintains a crossreference database/log of the Directed RFQ identification numbers andthe associated requestor identity so as to associate and route responsesappropriately, e.g. at the same time that the anonymous request messageis generated, the data is stored in the cross-reference database. Thisdatabase may be maintained in a memory or other storage device.

In one embodiment, individual Directed RFQ Responses may have anassociated TTL which extends beyond the expiration of the originalDirected RFQ Request. This is acceptable, and Directed RFQ Responseswhich have not yet expired are fully executable against by the DirectedRFQ originator.

In one embodiment, the Directed RFQ system is managed via a centralserver process. In the event of an “in flight” situation (such as aDirected RFQ Response being cancelled or otherwise expiring while theRFQ originator's acceptance is “on the wire”), whichever request isprocessed by the Directed RFQ central server first, wins. Othertransaction coherency protection mechanisms may also be provided.

Mechanisms may also be provided to allow requestors to manage pendingDirected RFQ requests and responders to manage pending responses. Thiswould allow a requestor, for example, to track which Directed RFQ's areactive, how long they have to live, the present response status, etc.For responders, the mechanisms permit them to know what actionablequotes are still live and how long they have to live. This would allow,for example, a responder to manage responses to multiple Directed RFQ'sto the same product so as not to over expose themselves. For example, anapplication program interface (“API”) may be provided which allowsrequestors and/or responders to access and/or modify the internaldatabases/tables maintained by the DRFQ system to manage requests andresponses and their associated TTL's as will be described. The API maybe a simple command and control interface which receives command/controlmessages, executes the command contained therein and sends back aresponse message to the sender based thereon. Alternatively, the API maybe a web based interface providing a secure media-rich interactiveclient application permitting the described management tasks.

FIG. 4 shows an exemplary business message flow for the Directed RFQfunctionality of the disclosed embodiments. It will be appreciated thatother messaging protocols may also be used to achieve the disclosedfunctionality. Further, it will be appreciated that the media over whichthe Directed RFQ messaging traffic flows is implementation dependent andmay include wireless and wired networks, private and publicly accessiblenetworks, or combinations thereof.

In response to a Directed RFQ, there may be multiple responses fromvarious interested parties. These responses may be generatedsubstantially simultaneously or over a window of time as the variousparties receive and react to the Directed RFQ. Further, the transmissionof the Directed RFQ as well as the responses thereto, may be subject tovarious network latencies between and among the disclosed system and thetransacting parties. Further, each response may include differentparameters, including a different TTL. In one embodiment, the DirectedRFQ is matched to the first response which meets the request parameters,i.e. the business requirements specified by the request originator, andall other responses are rejected. This matching may be automaticallyperformed by the system or, alternatively, responses may be routed backto the originator who then selects the response they wish to trade withbased on criteria of their choosing. In one embodiment, the originatormay select a desired response based on at least the price wherein thesystem then automatically selects among the available responses at thatprice via the mechanisms described below. It will be appreciated thatmany different matching/selection mechanisms may be utilized rangingfrom fully automated systems to fully manual systems, and all suchsystems are contemplated herein.

In an alternate embodiment, the Directed RFQ central server may maintaina private order book on behalf of the originator which maintained, forexample, until the TTL of the Directed RFQ expires. Mechanisms may beprovided which balance the parameters of each response against theparameters/requirements of the Directed RFQ so as to match the mostoptimal response(s) with the request. For example, a “window ofopportunity” may be defined in which responses are allowed to accumulatebefore evaluating those responses and matching to the most optimal. Suchfactors considered in matching requests with responses may include theprice, quantity, TTL (of the request and/or the response), orcombinations thereof. Once the “window of opportunity” closes, allsubsequently received responses are rejected even if they may be moreoptimal than an accepted response. In one embodiment, the “window ofopportunity” may be dynamic and may be based on the latest expiringresponse which meets one or more of the request parameters.Alternatively, the “window of opportunity” may be statically defined ormay be defined by a parameter of the Directed RFQ itself, on atransaction by transaction basis, such as by the TTL of the DirectedRFQ. Typically, the requestor will desire a long TTL on the responses toallow for the best selection of quotes while the responder will want ashort TTL on the response to minimize exposure/risk. Once the windowcloses, the central server evaluates the received responses and takesthe best price which matches the originator's requirements (as stated inthe Directed RFQ). The system may then execute a block trade on behalfof both parties to complete the transaction. In one embodiment, multipleresponses which tie for the best price or otherwise meet therequirements may be subject to selection by First in First Out, or otherarbitration mechanism such as round-robin. Once the transaction iscomplete, fill notifications are sent back to both parties, etc.

Given the transmission latencies noted above, a given response mayarrive at the system later than a later-generated response or miss theTTL of a given Directed RFQ, and may therefore miss a matchingopportunity, depending on the transmission latencies in the system. Inone embodiment, logic is included to evaluate responses based on thetime they are generated and the time they are actually received tomitigate “in-flight” discrepancies and otherwise maintain coherencybetween Directed RFQ's and the responses thereto, ensuring equalopportunity to the market participants and minimizing re-transmission ofrequests and responses.

In one embodiment, Directed RFQ transactions occur outside of the normalcentral order book. In an alternative embodiment, a particular DirectedRFQ may be allowed to match against the central order book where asuitable order is present.

In one embodiment, conditional responses to a Directed RFQ may besupported allowing a responder to attach conditions to theirresponse/actionable quote. Matching of the response to the requestfactors in whether the specified conditions are met, in addition toother factors.

In an alternative embodiment, indicative quoting is also supportedallowing market makers to publish indicative quotes to the market placeand invite Directed RFQ's from interested parties prior to issuingactionable quotes.

FIG. 8 depicts a block diagram of an exemplary system 600 for tradingOTC FX instruments having a directed request for quote server 118according to the disclosed embodiments. It will be appreciated that theDRFQ server 118 may be integrated with an exchange 108 or separatetherefrom. Further, the DRFQ server 118 may be implemented in hardware,software or a combination thereof and may be further implemented as oneor more discrete devices and/or software programs interconnected via awired and/or wireless network. The system 600 includes the DRFQ server118 coupled with an exchange 108, such as the Chicago MercantileExchange described above. The DRFQ server 118 is further coupled with aplurality of market participants, such as traders 104 and market makers106, such as via network connections, wired or wireless, between theDRFQ server 118 and terminals and/or terminal application software usedby the market participants 104, 106 to participate in the market. Itwill be appreciated that interconnections between the DRFQ server 118and the market participants 104, 106 may be implemented via the exchange108. In one embodiment, the market participants 104, 106 execute aclient application interface which communicates with the DRFQ server 118using a defined communications protocol to implement the disclosedfunctionality. This client application interface may be integrated withthe market participant's other software used for trading on the exchange108 or may be separate therefrom, such as a web based interface. Thecommunications protocol may include a proprietary protocol,non-proprietary protocol, e.g. TCP/IP based, or combinations thereof,and may feature security protocols to protect the communications anderror detection/correction and quality of service (“QOS”) protocols toensure reliable and expedient communications. It will be appreciatedthat the described functionality may be implemented as hardware and/orcomputer program logic/software at the server 118, on the terminals ofthe market participants 104, 106, at the exchange 108 or via acombination thereof.

As an operational example, in one embodiment, a first entity, such as atrader 104 sends a DRFQ to the DRFQ server 118 (labeled A). For example,the trader 104 utilizes their application interface to generate a DRFQmessage including the specified parameters according to a system-defineddata structure, and transmit the DRFQ message to the DRFQ server 118utilizing the system-defined communications protocol, which may includesecuring the DRFQ message, such as by encrypting it. The DRFQ Aidentifies the first trader 104, specifies an instrument, such as aparticular FX instrument, that the first trader 104 is interested intrading, the time and date that the request was generated and/ortransmitted and, in one embodiment, specifies a time to live for therequest. The DRFQ A may further specify whether the first trader 104 isinterested in buying or selling the specified instrument. A secondtrader 104 also sends a DRFQ to the DRFQ server 118 (labeled B),identifying the second trader 104 and specifying an instrument, anoptional time to live and an optional buy or sell indication. It will beappreciated that the DRFQ's A and B may further specify otherinformation necessary to accomplish the disclosed functionality and thatsuch information is implementation dependent. Upon receipt of the DRFQ'sA and B, the DRFQ server 118 may send acknowledgement (not shown) backto the first and second traders 104 to confirm the receipt of the DRFQ'sA and B.

Upon receipt of the DRFQ's A and B, the DRFQ server 118, as will bedescribed in more detail below, logs the time/date of receipt,anonymizes the DRFQ's A and B, determines one or more other entities,such as other market participants 104, 106, to which to transmit theanonymized DRFQ's A and B and transmits them thereto. In particular, theDRFQ server 118 removes the identity of the requesting trader 104 fromthe DRFQ A, B, while maintaining the ability to correlate the anyresponses back to the requesting trader 104. For example, the DRFQserver 118 may generate a unique identification code for the DRFQ A, Band log that identification code in a cross-reference log/databaseassociated with the identity of the requesting trader 104. Theidentification code is then substituted in the DRFQ A, B for theidentity of the requesting trader 104 such that the requesting trader104 can only be identified from the DRFQ A, B using the cross-referencemaintained by the DRFQ server 118.

Once anonymized, the DRFQ server 118 then identifies one or more othermarket participants, such as market makers 106, that would be interestedin quoting for the instrument specified in the DRFQ A, B. In oneembodiment, the anonymized DRFQ A, B may be broadcast to all marketparticipants 104, 106 or all market makers 106. In an alternativeembodiment, the DRFQ server 118 may maintain interest profiles for eachof the market participants 104, 106 which specify what thoseparticipants 104, 106 are interested in trading. These interest profilesmay be maintained by the market participants 104, 106 themselves, suchas in real time. Based on these interest profiles, the DRFQ server 118selects one or more market participants 104, 106 to receive theanonymized DRFQ A, B. In the example of FIG. 8, anonymized DRFQ A may besent to first and second market makers 106 (labeled C and D) while DRFQB may be sent only to the third market maker 106 (labeled E). In oneembodiment, if the DRFQ A, B specifies the buy or sell intent of therequesting trader 104, this indication may be removed prior totransmitting the anonymized DRFQ A, B to the selected marketparticipants.

The DRFQ server 118 may further note the time-to-live (“TTL”) specifiedfor each DRFQ A, B. As was discussed above, the TTL determines how longthe particular request will be kept “alive,” i.e. what is the window oftime over which responses to the request will be considered. The TTL maybe specified as an absolute expiration, e.g. 10:05 p.m, Apr. 18, 2006,or may be specified as a duration measured from a particular origin,e.g. 1 hour from the time the transmission time of the request(specified in the request) or 1 hour from the receipt of the request bythe DRFQ server 118. As an alternative to specifying the TTL in the DRFQitself, the TTL may be automatically specified by the DRFQ server 118,such as a default TTL, which may be used, for example, when the DRFQfails to specify the TTL or completely in place of a DRFQ specified TTL.As will be described in more detail below, the once the TTL elapses orotherwise expires, the associated DRFQ expires, i.e. the window ofopportunity to receive actionable quotes in response to the request isclosed. In one embodiment, a server process monitors all of the TTL's ofthe pending requests and responses and determines when they expire. Forexample, each TTL may be used to set a counter maintained by a datastructure which is decremented by the server process at a definedinterval. When the counter value is determined to be zero, the serverprocess generates an alert or alarm to indicate that the particular TTLhas expired. This alert/alarm may trigger other server processes whichimplement the disclosed functionality. In one embodiment, the expirationof the TTL may cause the server 118 to transmit cancellation notices toall of the market participants to which the associated DRFQ was sent, oralternatively, to those market participants 104, 106 who have not yetresponded with an actionable quote in response thereto. Actionablequotes received before expiration of the TTL, but not accepted beforeexpiration may be either cancelled or accepted, as will described below.Where the actionable quote is cancelled, a cancellation message may besent back to the originating market participant 104, 106. Actionablequotes received after expiration of the TTL may be rejected or allowedas will be described below. Responses carrying actionable quotes whichare in transit at the time the TTL expires, e.g. “in flight”, may beallowed or other algorithms may be employed to ensure fair operationwhich accounts for such situations, e.g. actionable quotes having beengenerated/transmitted prior to expiration of the TTL may be accepted.Where time of transmission may be utilized as the basis of acceptingactionable quotes, mechanisms may be implemented to ensure certaintythat no more “in-flight” transmissions exist, such as an absolutecut-off time.

Once the particular market participants 104, 106 receive the anonymizedDRFQ's C, D, E, they will evaluate them to determine whether or not theywish to respond with an actionable quote. If so, the market participants104, 106 will send a response back to the DRFQ sever 118. The response(labeled F, G, H) may include an actionable quote and identify the DRFQto which the actionable quote is in response, such as by specifying theunique identification code of the particular DRFQ C, D, E, which willallow the DRFQ server 118 to associate the response with the DRFQoriginator. Alternatively, a market participant 104, 106 may ignore theDRFQ if they have no interest in responding or respond to say they willnot be providing an actionable quote rather than simply ignoring theDRFQ, such as to provide a confirmation back to the DRFQ server 118 thatthe DRFQ was at least received.

The response F, G, H may further specify a TTL for the actionable quote,similar to the TTL for the DRFQ, specifying how long the quote willremain valid. The response TTL serves to mitigate the exposure of themarket participant 104, 106 by limiting the life span over which theactionable quote may be accepted by the DRFQ originator. As with therequest TTL's, response TTL's may be specified in the response or may beautomatically specified by the server 118, such as by a default value insituations where no TTL is specified. The TTL may specified as anabsolute time or may be relatively specified such as by a specificduration measured from an origin, or the TTL may be specified based onan event, such as based on the expiration of the request TTL.

If the TTL of the response expires prior to acceptance of the associatedactionable quote, the actionable quote may be cancelled. In such asituation, a cancellation message may be transmitted back to theresponse originator to inform them that their quote was not acceptedprior to expiration of the TTL. Should the response be received afterits TTL has expired, the response may be rejected with a suitablemessage being sent back to the originator. In one embodiment, therequest TTL may be ignored so long as there is a response whose TTL hasnot yet expired.

In one embodiment, a market participant 104, 106 may explicitly cancelor rescind a previously submitted actionable quote so long as thecancellation request is received prior to acceptance of that quote.Mechanisms may further be provided so as to account for a cancellationwhich is sent prior, but received subsequent, to acceptance of theactionable quote. For example, the time of transmission and receipt maybe analyzed to determine when the cancellation was sent and acceptanceof the quote may be cancelled if the actionable quote was properlycancelled.

Once actionable quotes are received by the DRFQ server 118, they must beprocessed against the associated DRFQ's to determine if they areacceptable or not to the DRFQ requestor. In one embodiment, eachresponse/actionable quote received by the DRFQ server 118 is associatedwith the DRFQ originator, such as by cross referencing the DRFQidentifier and identify the originating entity. The actionable quote isthen forwarded to the DRFQ originator for review (labeled I, J). Asdescribed, the responses/actionable quotes are sent only to the DRFQoriginator rather than the entire market. This minimizes the exposure ofthe originator of the actionable quote by restricting who in the marketmay see it. In one embodiment, the actionable quotes are anonymizcdprior to sending the DRFQ originator. The actionable quote is forwardedalong with the associated TTL so that DRFQ originator knows how longthey have to make a decision. If the DRFQ originator wishes to acceptthe quote, they may return an acceptance message back to the DRFQ server118. Alternatively, the DRFQ server 118 may automatically matchacceptable actionable quotes and accept those quote based on theparameters specified in the DRFQ itself. In this embodiment, while theactionable quotes may be forwarded back to the DRFQ originator forinformational purposes, the acceptance of those quotes is automaticallyhandled. In yet another alternative embodiment, the DRFQ originator mayspecify whether they want to specifically review and accept the quote orrely on the DRFQ server 118 to do so automatically. Where the DRFQoriginator may respond with an acceptance to an actionable quote,mechanisms may be implemented to handle “in flight” issues such as wherean acceptance is sent prior to expiration of the actionable quote TTLbut received after expiration thereof or where the acceptance is sentprior to receipt of a cancellation of the actionable quote but receivedafter the cancellation thereof. Such mechanisms ensure a fair marketwhich operates in a definite/certain/unambiguous manner according to theexpectations of the market participants.

In embodiments where the DRFQ server 118 may automatically acceptactionable quotes, such acceptance may be based on whether theactionable quote is the first received of multiple actionable quotesreceived. Where the first actionable quote does not completely satisfythe DRFQ, the server 118 may allow partials fills, accepting actionablequotes in the order they are received until the entire DRFQ issatisfied. Again, mechanisms may be in place to ensure that anactionable quote sent prior to, but received after, another quote, isaccepted first. Alternatively, the DRFQ server 118 may accumulate anumber of actionable quotes over a window of time, such as the TTL ofthe request, or the shortest or longest TTL of a received actionablequote. Upon closing of this window of opportunity, the server 118 maythen evaluate and accept the one or more actionable quotes which bestmeet the parameters of the DRFQ. In this embodiment, the DRFQ mayfurther specify criteria for acceptance with the server 118 determiningthe degree to which the criteria are satisfied by the receivedactionable quotes. These criteria may include request lifetime,quantity, maximum price, minimum price, buy order, sell order, orcombinations thereof. Where more than one actionable quote meets thecriteria, the server 118 may allocate acceptance among one or more ofthose quotes. The server 118 may further notify each market participantas to whether their quote was accepted or not.

Once one or more actionable quotes are accepted in response to the DRFQ,the actionable quote is sent to an exchange, such as the CME, to bematched and completed.

As market participants 104, 106 may have multiple concurrent DRFQ's andactionable quotes pending at any given time, management functions areprovided to allow the market participants 104, 106 to trackpending/concurrent DRFQ's and/or actionable quotes and cancel orotherwise modify those pending DRFQ's and/or actionable quotes. Forexample, the server 118 may provide real time information showing thepending status of a DRFQ and all actionable quotes received in responsethereto, showing the respective TTL's and a real timecomparison/evaluation of the responses as measured against each otherand the DRFQ. Further, the originator of the DRFQ or actionable quotemay be permitted to extend the TTL if they so desire.

As was discussed, coherency issues exist when requests and responsesthereto are characterized by an expiration period, such as a TTL asdescribed. Transmission or other processing delays may cause “in flight”issues where messages sent before an expiration, arrive after ormessages, such as acceptance and cancellation messages, cross intransit. Mechanisms to protect coherency in the market and maintainexpectations among the participants 104, 106 of a definite, certain,consistent and unambiguous market may be established to minimize oreliminate coherency problems. For example, an acknowledgement protocolmay be implemented requiring receipt of a message to be acknowledgedwithin defined time window. Where a sender fails to receive theappropriate acknowledgement, they will assume a transmission failure andresend their message. Further, redundancies may also be added to ensurereliable message transmission. In addition, messages may be time-stampedwith the time of transmission, the time of transmission being used tocompare messages to ensure processing in the proper order, or otherwisecompensate for out-of-order receipt. All of this information may furtherbe logged to provide an audit trail allowing post-mortem evaluation ofunexpected operation, failures, etc.

The DRFQ server 118, in conjunction with the exchange 108, then obviatesthe need for bilateral relationships between the market participants andbuffers the risk of loss with respect to the instruments being tradedamong the market participants.

FIG. 9 depicts a block diagram of one embodiment of a directed requestfor quote (“DRFQ”) server 118 for use with the system of FIG. 8. TheDRFQ server 118 includes a request receiver 202 coupled with a network(not shown) and operative to receive a request for quote from a marketparticipant as described above, a request transmitter 214 coupled withthe request receiver 202 and the network and operative to transmit therequest for quote to at least a subset of the plurality of marketparticipants without identifying the request originator, a responsereceiver 216 coupled with the network and operative to receive at leastone response from at least one of the market participants identifyingthe request for quote and including an actionable quote in responsethereto, and a response transmitter 222 coupled with the responsereceiver 216 and operative to transmit the at least one responseexclusively to the request originator. In one embodiment, the responsetransmitter 222 may further anonymize the responses/actionable quotesprior to sending them to the request originator. In an alternateembodiment, where the DRFQ specifies an intent to buy or sell, therequest transmitter 214 may further transmit the request withoutidentifying the intent. In one embodiment, the response receiver 216 isfurther operative to receive a cancellation of the actionable quote andprevent acceptance of the actionable quote in response thereto when thecancellation is received prior to acceptance.

In one embodiment the server 118 includes one or more processors (notshown), one or more memories (not shown) and/or other storage mediacoupled with the one or more processors and a network interface (notshown) coupled with the one or more processors and the network andoperative to facilitate communications therebetween. Each of the requestreceiver 202, request transmitter 214, response received 216 andresponse transmitter 222 may be implemented in hardware, software/logicor a combination thereof. For example, the server 118 may furtherinclude first logic stored in the memory and executable by theprocessor(s) to receive a first communication comprising a request forquote via the network from one of the market participants as describedabove, second logic, coupled with the first logic, stored in the memoryand executable by the processor(s) to transmit a second communicationcomprising the request for quote via the network to at least a subset ofthe other market participants without identifying the requestoriginator, third logic stored in the memory and executable by theprocessor(s) to receive at least one third communication comprising aresponse via the network from at least one other market participant, theresponse identifying the request for quote and including an actionablequote in response thereto, and fourth logic, coupled with the thirdlogic, stored in the memory and executable by the processor(s) totransmit via the network a fourth communication comprising the responseexclusively to the request originator. As was described above, theserver 118 may be implemented in hardware, software or a combinationthereof, further, while various components are discussed in terms oftheir discrete functions, it will be further appreciated that one ormore of the described functions may be implemented in a single componentor any one function may be performed by multiple discrete components, orcombinations thereof, and is implementation dependent.

The server 118 further includes, as logic stored in the memory andexecutable by the processor(s), or otherwise as hardware/software or acombination thereof, an entity selector 212 coupled with the requestreceiver 202 and request transmitter 214 and operative to identify oneor more of the other market participants in response to the request forquote which may be interested in providing a quote. In one embodiment,the entity selector may maintain an interest profile for each of themarket participants wherein the entity selector identifies which marketparticipants to send the DRFQ to based on the interest profile of theassociated market participant.

As was described, the DRFQ server 118 anonymizes the DRFQ's beforesending them to the interested market participants. In one embodiment,the server 118 includes a request identification log 210 coupled withthe request receiver 202 and response transmitter 222, wherein therequest receiver 202 is further operative to store an identification ofthe request originator in relation to the request for quote in therequest identification log 210 and the request transmitter 222 isfurther operative to associate the received responses with the requestoriginator based on the identification stored in the requestidentification log 210 and transmit the response based thereon. Therequest identification log 210 may be implemented in the memory or otherstoragc mcdium and may include a database, table or other datastructure(s) suitable to implement the disclosed functionality. In oneembodiment, the server 118 may include, as logic stored in the memoryand executable by the processor(s), or otherwise as hardware/software ora combination thereof, a request identifier 208 coupled with the requestreceiver 202, the request transmitter 214 and the response transmitter222, wherein the request identifier 208 is operative to generate aunique identification code having no externally discernable relation tothe request originator and create a relationship between the uniqueidentification code, the request for quote and the request originator,wherein the request transmitter 214 is further operative to transmit theunique identification code along with the request for quote, and furtherwherein the responses/actionable quotes received in response theretoinclude the unique identification code, the response transmitter 222being further operative to transmit the responses to the requestoriginator based the unique identification code from the response andthe relationship provided by the request identifier 208. In oneembodiment, the request identifier 208 may include a number generator,such as a random number generator, and may further be coupled with theidentification log 210 to store the unique identification codes inrelation to the identities of the associated DRFQ originators.Alternatively, the request identifier 208 may generate or assign uniqueidentification codes based on events such as the time/date of thereceipt of the request, based on an encoding of one or more of theparameters of the request, such as an encryption or hash thereof, orcombinations thereof.

As was described above, the DRFQ's and/or responses thereto, may specifya TTL. The server 118 includes, as logic stored in the memory andexecutable by the processor(s), or otherwise as hardware/software or acombination thereof, a Request Expiration Processor 206 and ResponseExpiration Processor 220 to process the TTL's of the requests andresponses as was described above. The processors 206, 220 log the TTL'sof the requests and responses and monitor the TTL to determine when theyexpire. In one embodiment, the processors 206, 220 may maintain therequests, responses and their associated TTL's in a table or othersuitable data structure wherein the data structure further includes adecremented value which is initialized as the TTL value and subsequentlydecremented at regular intervals by the processors 206, 220 until theyreach a zero or negative value signifying expiration thereof. Uponexpiration, the processors 206, 220 perform the described actions, suchas canceling the requests and/or responses and/or sendingcancellation/expiration messages to the appropriate entities. Inembodiments featuring a default TTL for either the requests orresponses, the appropriate processor 206, 220 may specify the defaultTTL to be used. The operations of the request and response expirationprocessor 206, 220 may further implement the coherency mechanismsdescribed above. For example, in one embodiment, wherein the responsesare further characterized by time of transmission and a time of receiptdifferent from the time of transmission, the request and/or responseexpiration processor 206, 220 may further include a synchronizationprocessor (not shown) coupled with the response receiver 216 and/orrequest receiver 202 to compensate for the difference between the timeof transmission and the time of receipt.

The server 118 further includes, as logic stored in the memory andexecutable by the processor(s), or otherwise as hardware/software or acombination thereof, a matching processor 226 coupled with the requestreceiver 202 and the response receiver 216 and operative to determineacceptance of the actionable quotes which are received in response tothe DRFQ's sent to the market participants. As described, the matchingprocessor 226 may accept quotes based on instructions from the DRFQoriginator, may automatically accept quotes by comparing the DRFQagainst the received actionable quotes or based on some other criteria,such as on a first received or best match basis, or a combinationthereof. In embodiments where the DRFQ originator may evaluate andaccept one or more of the actionable quotes, an acceptance receiver 224is provided as logic stored in the memory and executable by theprocessor(s), or otherwise as hardware/software or a combinationthereof, which is coupled with the matching processor 226 and operativeto receive the acceptance from the DRFQ originator. The acceptancereceiver 224 may also be coupled with the response expiration processor220 to determine if the acceptance was received prior expiration of theTTL of the actionable quote. In one embodiment, if the acceptance isreceived too late, the acceptance may be rejected and an appropriatemessage sent back to the DRFQ originator.

In embodiments which provide for automated acceptance of the actionablequotes, the server 118 may permit the DRFQ to further specify at leastone criteria for acceptance of an actionable quote in response thereto.The matching processor 226 would then determine the degree to which thecriteria are satisfied by the actionable quote(s) received. The criteriamay include request lifetime, quantity, maximum price, minimum price,buy order, sell order, or combinations thereof. Where multipleactionable quotes are received, the matching processor 226 may determinewhich of those actionable quotes best satisfies the DRFQ. In oneembodiment, the matching processor 226 may allocate the DRFQ amongmultiple actionable quotes that best match the specified criteria.

The matching processor 226 may further send notifications to thosemarket participants 104, 106 whose quotes where not accepted informingthem of such.

The DRFQ server 118 further includes, as logic stored in the memory andexecutable by the processor(s), or otherwise as hardware/software or acombination thereof, an exchange transmitter 228 coupled with thematching processor 226 and operative to transmit the request for quoteand the accepted actionable quote(s) to an exchange upon acceptance, aswas described.

In addition, in one embodiment, the DRFQ server 118 further includes, aslogic stored in the memory and executable by the processor(s), orotherwise as hardware/software or a combination thereof, a requestmanager 204 and/or a response manager 218. The request manager 204permits DRFQ originators to manage multiple pending DRFQ's, for exampleto allow them to cancel a pending DRFQ or modify it's TTL, or otherparameter such as the acceptance criteria which define an acceptableactionable quote. The response manager 218 permits respondents to DRFQ'sto modify their pending actionable quotes such as by canceling them,modifying their TTL or modifying some other parameter. The requestmanager 204 and/or response manager 218 may be implemented as an API,such as web based API, to which the market participants use a clientapplication, such as a web browser, to interact.

The DRFQ server 118 may further include, as logic stored in the memoryand executable by the processor(s), or otherwise as hardware/software ora combination thereof, a risk manager 230 which monitors all of thepending DRFQ's and pending actionable quotes, along with the identitiesof the associated participants. The risk manager 230 may compute, on areal time or other basis, the various exposures/risks of loss of eachparticipant, compute margin requirements, identify trading anomalies orirregularities, such as fraud or illegal activity, or combinationsthereof. The risk manager 230 may report this data to the marketparticipants and/or to the exchange or operator of the DRFQ server 118.

FIG. 10 depicts a block diagram of an exemplary system 1000 for tradingOTC FX instruments having a directed request for quote system accordingto an alternative embodiment. Each box shown in FIG. 10 represents aspecific computer, or set of computers, performing a unique function asdescribed. The system 1000 operates as follows:

-   -   1. A DRFQ Requestor 1002 sends in a new request for quote to the        DRFQ Server 1008. This could be an RFQ for size (quantity), for        price, or both.        -   a. The DRFQ Server 1008 accepts the DRFQ Request from the            DRFQ Requestor 1002 and responds with an acknowledgement            message (not shown), directly back to the DRFQ Requestor            1002.        -   b. If the DRFQ Request was malformed or if it was otherwise            invalid (due to instrument/market definition or timing), the            DRFQ Server 1008 could reject the Request with a reject            message sent direct back to the Requestor (not shown).    -   2. The DRFQ Server 1008 publicly publishes an anonymous DRFQ,        all market participants receive this message via CME's Market        Data interfaces. The DRFQ has a unique identifier which the DRFQ        Server 1008 can use to map it back to the original DRFQ Request.    -   3. Various market participants 1004, 1006 may respond with        actionable DRFQ Responses. These DRFQ Response will fulfill the        DRFQ Request and use the unique identifier as a reference.    -   4. The DRFQ Server 1008, either via a query to the DRFQ        Requestor 1002 or via some normalized/algorithmic booking means,        determines the best DRFQ Response and matches up the two sides        of the transaction.        -   a. OPTIONAL: Message segments 4 below show the DRFQ Server            1008 sending the query to the DRFQ Requestor 1002. This            could be the best DRFQ Response matching the original DRFQ            Request 1002 or it could be the entire set of DRFQ            Responses. In either case, it is anonymous data. The DRFQ            Requestor 1002 can then choose which DRFQ Response to use            for the transaction.        -   b. OPTIONAL: The algorithmic selection criteria could be            best price, best size, best time, or some set therein. It            could also have a Market Maker feature which allowed certain            DRFQ Responders 1004, 1006 priority over others.    -   5. The DRFQ Server 1008 will send an acknowledgement to the DRFQ        Responders 1004, 1006, letting each know the status of their        DRFQ Response. It could be cancelled, in the case where it did        not meet the selection criteria    -   6. The DRFQ Server 1008, having both sides of the transaction in        hand, will create a Block trade and send it into the Trading        Engine 1010.    -   7. The Trading Engine 1010 sends FIX Fill Notification messages        (normal/current practice) to the two parties associated with the        trade.    -   8. The Trading Engine 1010 then sends the trade information to        the Clearing Systems 1012 whereupon normal CME clearing        processes take effect.

More information regarding Directed Requests For Quotes may be found inU.S. patent application Ser. No. 11/452,653, entitled “SYSTEM AND METHODFOR DIRECTED REQUEST FOR QUOTE”, filed Jun. 14, 2006, published as U.S.Patent Application Publication No. US 2007/0118455 A1, pending, thedisclosure of which is herein incorporated by reference.

In one embodiment, Mass Quoting and associated market maker protectionsare supported for Directed RFQ trade flow. Where market makerprotections are triggered, by either a Directed RFQ or CLOB-basedmechanism, both the MassQuotes in the existing CLOB markets may becanceled and, additionally, any active Directed RFQ responses may alsobe immediately cancelled by the system.

As noted above, DRFQ responses, generated by market participants inresponse to DRFQ's, include actionable quotes for the requested productswhich may be accepted by the DRFQ requestor, such as within the TTLwindow of the DRFQ response. Acceptance of an actionable quote binds themarket participant to the transaction. As each actionable quoterepresents a transaction, open for given period of time, to which theresponding market participant may be bound, there is a certain amount ofrisk associated therewith until such time as the DRFQ responseterminates, i.e. is accepted or expires. In addition, in an activemarket, there will be many DRFQ's pending/open at any given time, somefor the same products, and a given market participant may have manyresponses, i.e. actionable quotes “alive” at any given time, in responseto many DRFQ's, including DRFQ's for the same products. The TTLmechanism described above assists in mitigating the number of open-endedtransactions that are pending at any given time, however, a marketparticipant may still have a significant amount of exposure in thesystem. For example, in response to several DRFQ's for the same product,a given market participant may issue multiple actionable quotes,intending, upon acceptance of one of those quotes, to terminate theremaining quotes. If, however, more than one of the pending actionablequotes should be accepted before the market maker can act and terminatethose they did not wish to have accepted, they will be bound to theassociated transactions, potentially incurring more liability thananticipated. Alternatively, or in addition, the Exchange may desire tolimit the amount of exposure/risk of the various participating marketmakers in order to maintain market stability and reliability and avoidactivities which would be detrimental thereto. Accordingly, thedisclosed embodiments provide a mechanism to monitor the amount ofexposure/risk that a given market participant has at any given time andprovide mechanisms to mitigate or otherwise control that exposure. Suchmechanisms may include alerting mechanisms and/or transaction managementmechanisms such as mechanisms to prevent a market maker from furtherresponding to DRFQ's, and thereby incur additional risk/exposure, reducethe number pending actionable quotes, or combinations thereof. Further,the disclosed embodiments recognize that excessive exposure may beincurred via multiple smaller transactions, a few large transaction orcombinations thereof.

In one embodiment, the system quantifies risk into defined/measurableunits, each unit representative of a defined “amount” of risk, measuredin dollars or some other metric. Each market participants is thenallocated a certain amount of risk units, either statically and/ordynamically, to be used over a particular period which may be temporallydefined, transactionally defined, or combinations thereof. For example,the system may include a centralized risk allocation system such as arisk bank which maintains risk accounts for each market participant,each risk account maintaining a risk balance reflecting the amount ofrisk units available, used, consumed or otherwise unavailable, or acombination thereof. The initial allocation of risk units may be basedon multiple factors including credit rating, historical performance,margin account levels, government or other regulation, self or exchangeimposed limitations/policies or other factors or combinations thereof.As a market participant issues actionable quotes, the systemallocates/checks-out an amount of risk units to the market participant,in relation to the pending quote, based on the risk thereof. Theamount/block of risk units allocated may be fixed or may vary dependingon parameters of the transaction, government or other regulation,policies of the Exchange or market participant, characteristics of themarket participant or other factors or combinations thereof. If thepending transaction is terminated, either cancelled or completed, theallocated risk units may be returned/checked-in to the risk account andthereby be available for future transactions. Alternatively, onceconsumed, a unit of risk may not be re-used, either permanently, for aperiod of time or other metric, thereby acting as a limit control. Ifthe risk account is depleted, actions may be taken such as alerting theExchange and/or the market participant, preventing the marketparticipant from issuing more actionable quotes, or combinationsthereof. In one embodiment, the market participant may be able toreceive or purchase an additional allocation of risk units. For example,when warranted, they may earn or are awarded more risk units, such as iftheir credit rating improves or they post an additional bond orcollateral. Further, the risk account may reset, either based on a timelimit, a transactional limit or a combination thereof, restoring therisk balance. This may be used in systems where the market maker is onlyprotected from over-extending themselves over a defined time window,number of transactions or combination thereof.

In implementation, a supervisory process, coupled with the risk bank,monitors the transaction flow and allocates or de-allocates risk unitfrom the various risk accounts in the risk bank. In one embodiment, theallocation/de-allocation occurs in real time, allowing for real-timetransaction risk processing. Alternatively, the allocation/de-allocationprocess occurs in non-real-time so as to avoid impeding transactionflow. In this case, depletions of a market-maker's risk account arelogged and mitigating measures are enacted after the fact, such as atthe end of the trading day. In yet another alternative embodiment, theallocation/de-allocation process occurs in non-real time so as not toimpede transaction flow until the level of risk units remaining in therisk account falls below a particular threshold. At that point, theprocess becomes real-time, allocating and de-allocating risk units so asto ensure that the market participant does not over-extend themselves.

In one embodiment, the fluctuations in the level of risk units in therisk account are monitored. For example, large swings in the riskbalance are flagged as an indication of a problem. These fluctuations,or deltas, may be accumulated across periods where the risk balance isreset.

In one embodiment, the amount of risk allocated for a given transactionis fixed. Alternatively, the amount of risk allocated may be dynamic.For example, in determining the amount of risk units to allocate for agiven transaction, the system may look at the parameters of thetransaction, as well as other transactions, such as total executedquantity, the number of fills, the number of quotes at least filledonce, value/settlement date, e.g. for a forward-type product, such as anFX contract, the settlement date of the obligations therein, orcombinations thereof. These parameters, or derivative values thereof,such as an absolute value or running average across multipletransactions, may be analyzed over a particular fixed or variable timeperiod, such as one minute, one hour or the trading day. Alternatively,or in addition to, characteristics of the trading entity may beevaluated in determining the amount of risk allocated, such as thecredit rating/history of the market participant. Further, riskallocation may occur on a progressive basis, e.g. the amount of riskallocated may increase with each subsequent transaction, based on thenumber of outstanding transactions or the frequency of transactions,reflecting the extent of the trading entity's overall exposure and thecumulative risk involved.

FIG. 11 depicts a block diagram of an exemplary system 1100 of managingrisk undertaken by market participants 104/106 transacting via anExchange 108 according to one embodiment. The system 1100 includes arisk management system 1102 which includes a risk allocation processor1104, a transaction processor 1108 and a transaction handling processor1110, all coupled with the Exchange 108 and further coupled with anaccount database 1106.

The risk allocation processor 1104 is operative to allocate an amount ofrisk to the market participant, the allocated amount of risk beingstored in an account, e.g. a “risk account” in the account database1106, also referred to herein as a risk bank. In one embodiment, therisk allocation processor allocates an amount of risk based on a creditrating of the market participant. Alternatively, or in addition thereto,the risk allocation processor allocates an amount of risk based on themaximum liability the market participant may be expected to satisfy. Theamount of risk that is allocated may be for a fixed or variable periodof time or for a fixed or variable number of transactions, or acombination thereof, after the elapse of which, the amount is reset orreallocated. Alternatively, the allocation may be a one time allocation.

The transaction processor 1108 monitors transactions by the marketparticipants undertaken with the Exchange 108 and reduces or deductsfrom the stored allocated amount of risk, an amount based on atransaction proposed by the market participant. In one embodiment, theproposed transactions are reviewed and used as the basis for riskaccount adjustments. Alternatively, completed pending transactions, e.g.the proposed transaction has been accepted but not yet matched, may bereviewed. The transaction processor 1108 then stores the reducedallocated amount of risk in the account in place of the stored allocatedamount of risk, effectively reducing the amount of risk allocated in theaccount for future transactions as will be described. In one embodiment,the amount of risk deducted from the account is fixed, i.e. eachtransaction causes the same amount of risk to be deducted.Alternatively, the amount of risk that is deducted may be based on theproposed transaction, e.g. based on a risk assessment of the proposedtransactions, such as an assessment of the credit worthiness ortransaction history of the transacting parties and/or the volatility ofthe particular market, or other factors or combinations thereof.

The transaction processor 1108 is further operative to determine thatthe proposed transaction has been concluded, e.g. matched and completed,and, based thereon, increase the stored allocated amount risk. In thisway, the risk amounts are only allocated for open transactions that havenot yet been accepted/matched. The risk amount is then credited back tothe risk account in the account database 1106 upon conclusion of thetransaction and, thereby, elimination of the risk therein.

The transaction handling processor 1110 further includes a monitorprocessor 1112 coupled with the account database and operative todetermine if the stored allocated amount of risk has been depleted bythe reductions made by the transaction processor 1108. In oneembodiment, the monitor processor may generate a warning message, suchas via electronic mail or via the market participant's tradinginterface, to the market participant that the stored allocated amount ofrisk is nearing depletion. The threshold for the warning may be fixed,defined by the market participant 104/106, the Exchange 108, may vary,such as based on the credit history of the market participant, orcombinations thereof.

In response to the depletion of the risk account of the marketparticipant 104/106, or when the amount of risk in the account fallsbelow a defined threshold, as determined by the monitor processor 1112,the transaction handling processor is operative to take an action inaccordance with the determination. Exemplary actions include alertingthe market participant when the stored allocated amount of risk has beendepleted, blocking the proposed transaction when the stored allocatedamount of risk has been depleted, or combinations thereof.

In one embodiment the risk management system 1102 includes one or moreprocessors (not shown), one or more memories (not shown) and/or otherstorage media coupled with the one or more processors and a networkinterface (not shown) coupled with the one or more processors and anetwork operative to facilitate communications therebetween and with theExchange 108 and market participants 104/106. Each of the riskallocation processor 1104, transaction processor 1108, transactionhandling processor 1110, monitor processor 112 and account database 1106may be implemented in hardware, software/logic or a combination thereof.While various components are discussed in terms of their discretefunctions, it will be further appreciated that one or more of thedescribed functions may be implemented in a single component or any onefunction may be performed by multiple discrete components, orcombinations thereof, and is implementation dependent.

For example, the risk management system 1102 may include a processor anda memory coupled with the processor, wherein: first logic is stored inthe memory and executable by the processor to allocate an amount of riskto the market participant, the allocated amount of risk being stored inan account in the memory; second logic is stored in the memory andexecutable by the processor to reduce the stored allocated amount ofrisk based on a transaction proposed by the market participant; andthird logic is stored in the memory and executable by the processor todetermine if the stored allocated amount of risk has been depleted bythe reduction and act in accordance with the determination.

FIG. 12 depicts a flow chart showing exemplary operation of the systemof FIG. 11 according to one embodiment. The operations of protecting amarket participant participating in a market include allocating anamount of risk to the market participant, the allocated amount of riskbeing stored in an account (block 1202). In one embodiment, theallocation is based on a credit rating of the market participant.Alternatively, or in addition thereto, the allocation may be based onthe maximum liability the market participant may be expected to satisfy.The operations further include reducing the stored allocated amount ofrisk based on a transaction proposed by the market participant (block1204), such as by determining a first amount of risk associated with theproposed transaction and deducting the first amount of risk from thestored allocated amount of risk. Further, the reduced allocated amountof risk may be stored in the account in place of the stored allocatedamount of risk. In one embodiment, the first amount is fixed.Alternatively, the first amount may be based on the proposedtransaction. The operations also include determining if the storedallocated amount of risk has been depleted by the reduction (block 1206)and acting in accordance therewith (block 1208). The determining mayfurther include warning the market participant that the stored allocatedamount of risk is nearing depletion. The acting may include alerting themarket participant when the stored allocated amount of risk has beendepleted and/or blocking the proposed transaction when the storedallocated amount of risk has been depleted. In one embodiment, theoperations further include determining that the proposed transaction hasbeen concluded and increasing the stored allocated amount risk basedthereon. In another alternative embodiment, the amount of risk may bere-allocated to the market participant after an elapse of a period oftime.

In one embodiment, the market maker protections include those providedby the CME Falcon trading engine and include protections specified inTable 2 below.

TABLE 2 10. Falcon provides Enhanced Market Maker Protection 10.1 Falconrestricts the number of fills, the number of matched trades, or thenumber of contracts occurring within a CME defined time interval. 10.1.1The restriction time is defined at the Group Level. 10.1.2 Market Makerprotection applies to MASS QUOTER's only. 10.1.3 Market Maker Protection(MM Protection) applies to incoming Mass Quotes and resting Mass Quotesonly. 10.1.4 Market Maker Protection applies to each side of a Quoteseparately. Note: Market Maker Protection does not apply to Orderssubmitted by a Market Maker. 10.1.5 The CME defined time interval(variable N) is input via FAS and is applied at the Group level.10.1.5.1 The variable N is only applied to Products eligible for MassQuotes. 10.1.5.2 The variable N is based on a Trading Engine establishedheartbeat. 10.1.5.3 The heartbeat will commence randomly at start-up.10.1.5.3.1 The heartbeat will commence at the same time for each Group.10.1.5.4 The variable N may be changed on a real-time basis. 10.1.5.4.1A variable N change takes place at the end of the current N period.10.1.5.5 The variable N is maintained for MASS QUOTERs at the GroupLevel. 10.1.5.6 N resets at the end of N time period, whether marketaction occurs (execution/quote entry/etc.)or not. 10.1.5.7 Mass Quoterssetting/resetting MM Protection to Y enter the N time period inprogress. Note: no unique N time clock for MQ. 10.1.5.8 N variable ismaintained at Millisecond level-ssSSSS. 10.2 Falcon realizes threeprotection mechanisms applied at the group level for MASS QUOTERs: NewFill Protection (X), Execution Protection (Y), Quantity Protection (Z)10.2.1 New Fill Protection (X)-Falcon tracks the total new quoteexecutions per new quote side for all instruments within a Group for aMASS QUOTER. 10.2.1.1 A count starts at 1 for a Group when an executionoccurs for a new quote side. 10.2.1.1.1 The size of the executions andnumber of executions do not affect the count for the specificinstrument's quote side. 10.2.1.1.2 Executed Cancel/Replace and New MassQuotes occurring within the N time period for an instrument's quote sidewithin a group increment the count by 1. 10.2.1.2 The count incrementsby 1 for a Group for every execution occurring against a new quote on aquote side for an instrument group within the N time interval. Note: Newquote is defined a modification of an existing quote or a quote enteredafter a total fill for an instrument. 10.2.1.3 New Fill Protection (X)is determined by the MASS QUOTER and is modifiable at the FAS.10.2.1.3.1 Setting the New Fill Protection to 0 turns off theprotection. 10.2.1.4 The count X is reset every time a new N timeinterval starts. 10.2.1.5 Mass Quote Cancels do not impact the value ofX. 10.2.1.6 MM protection is triggered when X is greater than or equalto the MASS QUOTER defined X value. 10.2.2. Execution Protection (Y)-Falcon tracks the total number of executions per quote side for allinstruments within a Group for a MASS QUOTER. 10.2.2.1 A count starts at1 for a Group when an execution occurs for a quote side. 10.2.2.2 Thecount increments by 1 for a Group for every execution occurring againsta quote on a quote side for an instrument (in the Group) within the Ntime interval. 10.2.2.3 Execution Protection (Y) is determined by theMASS QUOTER and is modifiable at the FAS. 10.2.2.3.1 Setting theExecution Protection (Y) to 0 turns off the protection. 10.2.2.4 Thecount Y is reset every time a new N time interval starts. 10.2.2.5 MassQuote Cancels have no impact on the value of Y 10.2.2.6 MM protection istriggered when Y is greater than or equal to the MASS QUOTER defined Yvalue. 10.2.3 Quantity Protection (Z) -Falcon sums the total quantity ofexecuted trades per quote side for all instruments within a Group for aMASS QUOTER. 10.2.3.1 Aggregation starts for a Group when an executionoccurs for a quote side. 10.2.3.2 The sum increases for a Group by thetrade quantity amounts occurring against quotes on a quote side for aninstrument (in the Group) within the N time interval. [Note: quantity ininstrument, not leg totals of instrument] 10.2.3.3 Quantity Protection(Z) is determined by the MASS QUOTER and is modifiable at the FAS.10.2.3.3.1 Setting the Quantity Protection (Y) to 0 turns off theprotection. 10.2.3.4 The sum Z is reset every time a new N time intervalstarts. 10.2.3.5 Mass Quote Cancels have no impact on the value of Z10.2.3.6 MM protection is triggered when Z is greater than or equal tothe MASS QUOTER defined Z quantity value. 10.3 Market Makers determinethe X, Y, and Z values at the Group Level. 10.3.1 Falcon enginemaintains the MM defined X, Y, Z values at the Group Level. 10.3.2 X, Y,Z values are entered and maintained via the FAS at the Group level.10.3.3 X, Y, Z values are modifiable on a real-time basis. 10.3.3.1Changes do not take effect until the end of the N time period. 10.3.4 X,Y, and Z data type is Long 10.3.5 X, Y, and Z values can be between 0and max. value. 10.3.6 X, Y, and Z cannot be negative. 10.3.7 If theFill Protection count is greater than X, or the number of executionsgreater than Z, or the quantity of contracts traded is equal to orgreater than Y per Group within the N interval, MM Protection istriggered. 10.3.7.1 When MM Protection is activated, Falcon cancels theQuotes for all instruments within the Group for the MASS QUOTER'sSenderCompID. 10.3.7.1.1 Quote Entries within the Mass Quote messagewhich trigger MM protection are cancelled and added to the Number ofCancels Accepted field. Cancel/Replace QuoteEntries are only countedonce. 10.3.7.1.2 The QuoteEntry which triggers MM Protection generatesan execution. 10.3.7.1.3 Any remaining quantity is cancelled and addedto the Number of Cancels Accepted field. 10.3.7.2 Falcon sends a MassQuote Cancel Confirmation message with a Quote Status of F. 10.3.7.3 MMProtection is not enforced when the X, Y, Z variables are met inmid-matching. 10.3.7.4 MM Protection is triggered after the quote whichcauses the X, Y, or Z variable to trigger completes a matching process.10.3.7.5 Mass Quote messages which trigger MM Protection are returned anAck before cancellation message. 10.3.8 When MM Protection is triggered,Falcon does not accept any new Mass Quotes for a MASS QUOTER in thetriggered Group. 10.3.8.1 Falcon rejects Mass Quotes for the MASS QUOTERin the Group. Message Reject Code and Reason Text will denote that MMProtection has been initiated. Message Reject Code = 00 Message ReasonText = “ “ 10.3.8.1 Falcon accepts Quotes in the triggered Group if theMarket Maker Protection reset flag Tag 9773 has been reset to Y in aMass Quote Msg by the MASS QUOTER. 10.3.8.1.1 The value received fromthe MASS QUOTER is echoed back to the MASS QUOTER. 10.3.8.1.2 If thevalue of the reset flag is N and MM Protection is in effect, Falconsends the following reject: Quote status = 5 Reject code = 98 ReasonText = “Market Maker Protection” 10.3.8.1.3 After the MASS QUOTERsubmits the Protection Reset flag set to ‘Y’, they may continue to enterMass Quotes with the flag set back to ‘N’. 10.3.8.2 Falcon acceptsQuotes in the triggered Group if the Market Maker Protection reset flagTag 9773 has been reset to Y for the MASS QUOTER by the GCC via FAS.10.3.8.3 The MM Protection is triggered if an inbound Mass Quote messagecontains more than 110 invalid quotes. 10.3.8.3.1 If more than 110quotes within a Mass Quote message are invalid, the Falcon rejects theentire message and cancels all resting quotes in the Group for the MASSQUOTER. 10.3.8.3.1.1 Reject and cancellation occur whether MM Protectionflag is on or off. 10.3.8.3.1.2 Mass Quote Cancel Confirmation Messageset as follows: Cancel_Status = “F”, Reject_Code = 00, Reason_Text = “ ”10.3.8.3.1.3 Falcon will continue to reject Mass Quotes until the MASSQUOTER receives a Protection reset flag in a Mass Quote Message10.3.8.3.1.4 Subsequent Mass Quotes Messages received before reset willbe rejected and sent a Mass Quote Confirmation message with a QuoteStatus of 5. Message Reject Code = 98 Message Reason Text = “MarketMaker Protection” 10.3.8.4 In the event of a Falcon Engine restart, newMassQuote Messages are accepted regardless of the Protection Reset flag.10.3.8.5 Falcon does not reset Market Maker Protection status whenentering the close or pause state. 10.3.8.6 Falcon does reset MarketMaker Protection on the last scheduled close of a trading week. 10.3.8.7MM Protection is on if X, Y, Z has values present. 10.3.8.8 MMProtection is off if X and Y and Z have 0 values. 10.3.8.9 MM Protectiondefault value is 0 for X and Y and Z. 10.4 Over two N time periods, theworst case exposure for a Mass Quoter is two times the X or Y or Zvariable minus 2 of that variable. 10.5 Falcon executes ACKs for MQquotes before Canceling when MM Protection is triggered.

In the disclosed embodiments, the Market Data functionality ensures thatmarket data is efficiently and accurately communicated to the marketparticipants. All market data for these markets may be in notionalterms, i.e. expressed as the face value of the underlying instruments onwhich derivatives are traded, but other representations may be used.

Market data for the Central Limit Order Book may include:

-   -   The market depth of the Top of Book MA message (and Implied Top        of Book MY message) at 5.    -   Consolidated fills    -   Spreads and legs and/or spread quantities

Market data for the Directed RFQ may include:

-   -   The request message (and expiration message);    -   The fill and fill price.

In the disclosed systems, quotes and order book updates are anonymousand Traders cannot directly advertise their quotes.

Market statistics may include:

-   -   Update volume, high, low, last from central limit order book;    -   For block trades in this market, the market data statistics,        such as the overall volume, high, low and last, will be updated        based on the existing rules (these rules are defined in the EOS        2.0 RFC/Blocks feature set);    -   For Directed RFQ

In the disclosed embodiments, for Swap trades, market data for Spot andthe Forward outright legs is disseminated. For reciprocal markets, thosewhich use a Spot from another associated market, this market data mustbe rounded in some fashion.

In the disclosed embodiments, the Trade Data functionality ensures thattrade and order data is efficiently and accurately communicated to themarket participants.

Consolidated fill notifications need to be distributed immediately aftera match, independent of the venue the match occurred:

-   -   Notification to the front-end;    -   Notification to the clearing house;    -   Notification to the trade (account) owner's clearing firm;    -   Notification to a trader's back office system (open question);    -   Notification to market data (conditional on venue);

Consolidated Fill:

-   -   Front-end—sending only a single fill notification per aggressor        order, per price level, regardless of the number of        counterparties;    -   This could be accomplished either via modifying existing iLink        FIX messages (and overall messaging model) or via message        aggregation on the front-end;    -   Back-end—similar to the front-end consolidation, there would        only be a single notification per aggressor order, per price        level, regardless of the number of counterparties and individual        trades involved. It may be critical to this portion of the        Consolidated Fill is that the consolidation rules match the        Front-end rules exactly.

Fill notifications should include

-   -   Forward swaps—the Swap with the differential, the Spot leg with        its associated value date, and the forward leg with its        associated value date.        -   This will require either using the D1 message (as well as            the M1) from the Match Engine to Clearing, or a new            interface/message altogether. D1 and M1 are trade messages            sent by the trading engine to the clearing and reporting            organizations. See the Section below on Clearing/Settlement            for more information;    -   Spot contracts—the generic Spot contract and its associated        value date;    -   Forward out-rights—the generic forward out-right, and it's        associated value date.

In the disclosed embodiments, counterparty information may not beincluded in the fill notification:

-   -   To the front-end;    -   To the clearing firm.

Trade reporting maintains the original trade price & date to match cashmarket convention. Trade reporting is currently done via FIX ML andTREX, while the industry standards in OTC FX such as TOF, TWIST, &SWIFT. In the disclosed embodiments, clearing supports trade messages inthese major OTC FX formats. In one embodiment, DealHub or a similarservice can be used to convert from an originating CME format to one ofthese OTC FX standards.

Trade reporting is done in notional amount, rather than in quantity ofthe contract, using FIX ML as an originating CME formats.

In the disclosed embodiments, the Clearing/Trade Reporting/STPfunctionality essentially performs the trading functions of theExchange. Clearing handles all instrument creation & modification forthe Match Engine. As noted above, the Swap contract symbols do notchange daily. In one embodiment, each day the most economicallyappropriate end-of-day settlement prices for open contracts needs to bedetermined, so as to mark open positions to market. Daily settlementswill result in unrealized gain/loss. Pending deliveries, unrealizedlosses will be collateralized (rather than daily banking of thatmark-to-market amount).

The collateral requirements are based on:

-   -   The exact amount of unrealized gain/loss so far;    -   The maximum reasonably likely loss over the next trading day, as        determined by SPAN according to parameters we set; and    -   CLS requirements for capital against expected settlement        obligations;

Settlement/trade reporting contains information on the spread traded aswell as the outright legs (with the implied linkage between legs &spread present):

-   -   Clearing will optionally compress trades, based on client/CLS        need (note that this is not pre-netting, as that would zero out        a buy & sell whereas compression would not);    -   Clearing will optionally pre-net trades, based on client/CLS        need;    -   This pre-netting or compression can be done on a per currency        level of granularity;    -   All settlements will be made through Continuous Linked        Settlement Bank (CLS);    -   For normal open positions with the two-day value date        convention, we will be sending transactions to CLS between 4 and        5 pm Chicago time—needs to validated against existing OTC        practices;    -   Normal clearing settlement-cycle timelines will not be affected        and will remain 7 pm for completion of all post-trade activity        prior to the second day before the value date; and    -   Settlement reports are generated for each clearing firm        enumerating each account's specific activity.

In an alternative embodiment, support for Bilateral Credit, Give-Up's,Average Pricing (APS) and Single Line Entry of Differential Spreads(SLEDS) is provided.

Post-Trade Account number modifications are not allowed in this market

For Clearing/Trade Reporting, as mentioned above, the disclosedembodiments may use one of several options which are implementationdependent:

1. Pre-net each side by trade; or

2. Pre-net each side by trade date.

CME Clearing House can settle directly through CLS for each clearingfirm. If that clearing firm has CLS standing instructions for a givenaccount, CME can clear through CLS to the account level.

In the disclosed embodiments, the Fee functionality permits the Exchangeto charge transaction fees and other wise obtain compensation for use ofthe provided trading mechanisms. The Fee functionality accounts fortrading and other activities and appropriately obtains compensation fromthe transacting parties.

For the purposes of Fees, this will be a new class of marketparticipant.

The system will have the ability to fee by the following:

-   -   Discrete quantity tiers; and/or    -   Aggressor orders.

All quantity is in notional terms.

This market will be a “Payout” versus a “Revenue Share”

The attributes or qualities of a Market Maker, for the purposes of Feesonly, can be defined in the following terms:

-   -   SubscriberAlias—Where the order is coming from (i.e. a desk);    -   TraderID—Who the order is coming from; and    -   Account—For whom is this order.

The buy/sell file from Clearing must include the ‘aggressor order’indicator as well as information about what product this trade was apart of (specifically, in the case of a Swap, the buy/sell filetypically only includes the legs, with no reference to the spread).

There is the potential for a negative fee.

The Fee functionality handles the new transaction type which is theBlock trade resulting from a Directed RFQ which is different from anormal Block or Ex-Pit transaction.

In one embodiment, a variable fee structure may be provided in whichfees vary as a function of the risk of the transaction and/or of thetrading party.

The Front-End/Distribution functionality of the disclosed embodimentsinclude the interfaces, e.g. Application Program Interfaces (“API's”),GUI, etc. which permit the receipt of orders, Directed RFQ's, etc. fromthe market participants and the dissemination of trade and market datato the market participants.

Access and market data for Independent Software Vendor (“ISV”) andProprietary front-ends into the Central Limit Order Book (“CLOB”) andDirected RFQ will be available through API's:

-   -   In one embodiment, CME will distribute this new market via iLink        2.0, CME's market data API, only, with the required API        enhancements to encompass the new order types and this        marketplace; and    -   This market will use the existing market data infrastructure.

API access will be made available to any approved entity as determinedby FX Marketplace:

-   -   FX Marketplace must be able to prevent selected front-ends and        data centers from accessing it (for example EBS);    -   ISVs may also be permitted to create access for authorized users        (i.e. OTC market ISVs) via a GCC operated registration process.        These markets are not generally available to all traders on the        ISV network;

A front end may take one of three forms:

-   -   Deal with Reuters, using the existing CME interfaces (updated        iLink 2.0 API, Clearing link described above, market data);    -   New product development, either internal or through a joint        venture dependency; or    -   Update and existing CME front end (EOS/GL/CME.com).

In one embodiment, the front-end is browser based, rather than astand-alone application. The front-end must know the real-time, fullproduct definitions, inclusive of value dates for Spot and Swap markets.ISV's may also be permitted to create access for authorized users (i.e.OTC market ISV's). This system is not generally available to all traderson the ISV network.

The Distribution/Front-End system employed here would optionally conformto the Consolidated Fill guidelines mentioned above. In one embodiment,the system has the ability to deliver this information in the requiredindustry formats currently used in the OTC FX space.

In one embodiment, additional trading functionality is provided totransacting parties. For example, in one embodiment, Implied Spreads inCurrencies are provided. This function permits implying/interpolatingprice in one of multiple inter-related markets based on (sufficient)pricing data known in the remaining markets. Exemplary inter-relatedmarkets are: spot rate/swap rate/forward outright; cross currency (A/B,B/C, A/C) (across or within product lines), e.g.dollar/yen-yen/euro-dollar/euro; and between broken dates. In the caseof an incoming order for a swap market in currency A/B, the swap isbroken down into its two forward legs for said currency pair. These legscan be used to imply open interest in reciprocal markets or in thoseforward markets using either specific currency. The disclosedembodiments are not specific to the cash or futures market.

With FX products, the underlying currencies covered by the contracts arenot carried as instruments themselves on the Exchange, i.e. theindividual currencies are not instruments that are tradeable likecontracts. Instead, the Exchange, in the FX context, handles trades ofcross-currency instruments; e.g. forward swaps, which are based on anunderlying currency-pairing, e.g. euros/dollars, yen/euro, etc. However,at any given time, a market for a particular product, i.e. currencypair, may not exist in the Exchange, i.e. no parties have submittedorders, buy or sell, for such a swap contract/combination of particularcurrencies, and therefore no order book yet exists. In this case, thefirst time an order is received for that particular currency pair, aprice and an associated order book will not be available. The disclosedembodiments relate to a system that can determine the price for apreviously un-traded currency pair and, if necessary, create an orderbook, i.e. a market for the instrument. Effectively, the disclosedembodiments imply an entirely new product from existing products uponrequest, thereby permitting markets to be created on the fly. This mayallow for emerging markets in particular currency pairs to berecognized. In one embodiment, the process is triggered based off of aDRFQ for the particular currency pair. The DRFQ may be an indication ofa potentially developing market therefore. Alternatively, an actualorder, e.g. an offer to buy or sell the given instrument, may be enteredin the system and trigger the disclosed mechanism. In the traditionalbilateral OTC market for FX instruments, handling a new product, such asa new cross-currency swap, would require locating a trading counterpartyfor the instrument willing to enter into a bilateral agreement with theinquiring party. The central counterparty of the disclosed embodimentseliminates that requirement as the Exchange acts as the intermediary andestablishes the marketplace for the inquiring party. In one embodiment,an assessment of the liquidity of the underlying markets for the baseinstruments may be factored into whether or not a new market can becreated for the specified currency pair.

For example, if a DRFQ is received for a contract relating to a CanadianDollar (CAD)/Kiwi pair, and this pairing does not exist in the Exchange,the disclosed system will locate existing “bridging” or “unifying”products/markets for the individual component currencies as paired witha common currency such as US dollars (USD) or Euros (Eur), such as amarket for CAD/USD and a market for Kiwi/USD or a market for CAD/Eur anda market for Kiwi/Eur. As most currencies enjoy a swap market witheither US dollars or Euros, bridging products/markets are typicallyavailable. If a bridging market is not available, it may be possible tobridge across an additional currency pair, such as the USD/Eur market,assuming a currency pairing exists that resolves to at least one of USdollars or Euros. Once two or more bridging markets are identified, theprices thereof are used to imply the market for the currency pair inquestion. For example, if the present market, such as the inside market(the best buy and sell price) for CAD/USD is buy at price ‘A’ and sellat price ‘C’ and the present market for Kiwi/USD is buy at price ‘D’ andsell at price ‘B’, the market, e.g. inside market, for CAD/Kiwi may beimplied as buy at price ‘A-B’ and sell at price ‘C-D’. Wherein thebridging markets include a subset of the overall available orders, e.g.the top five bids and asks, this data may be utilized, as described, togenerate a set of available “virtual” orders, e.g. a set of bids andasks virtually representing the best bids and asks of the impliedmarket. From this data, an order book for CAD/Kiwi may be created inwhich the market participants may trade. In one embodiment, matchesamong orders in this market may then be executed by executing trades inthe markets for the underlying/bridging cross-currency products andcrossed books across each of the separate order books, i.e. counterpositions in each cross currency market, are matched.

FIG. 13 depicts a block diagram of an exemplary system 1300 forproviding intra-currency/implied spreads to market participants 104/106transacting via an Exchange 108 according to one embodiment. The system1300 includes a implied spread processor 1302 for determining a marketfor a new product, the new product comprising a relationship, such as aprice spread, between first and second components, e.g. first and secondcurrencies, such as Kiwi and Canadian Dollars, the relationship betweenthe first and second components being undetermined at least in part,such as because the requested spread/currency pair has not been tradedbefore. The implied spread processor 1302 includes an identificationprocessor 1306 coupled with the Exchange 108, a correlation processor1308 coupled with the identification processor 1306 and a marketgenerator 1304 coupled with the correlation processor 1306, theidentification processor 1306 and the Exchange 108.

In one embodiment, upon receipt of a request to transact in a particularproduct, such as via a request receiver (not shown) or other interface,the Exchange 108 determines whether a market for the particular productexists. If a market exists, the transaction proceeds as describedherein. However, if the Exchange is unable to identify an existingmarket, a request is transmitted to the implied spread processor 1302identifying the requested product. Alternatively, all transactionrequests may be filtered through the implied spread processor 1302, suchas via request receiver (not shown) or other interface, which determineswhether a market for the requested product exists. If a market exists,the request is passed to the Exchange 108 as usual. If a market for therequested product does not exist, the implied spread processor 1302operates as described.

The identification processor 1306 receives the request and is operativeto identify a first existing, i.e. bridging, market for a first productcomprising a market determined relationship between the first component,i.e. one of the currencies that is part of the requested product, and athird component, i.e. a currency that is not a part the requestedproduct. The identification processor 1306 is further operative toidentify a second existing market for a second product comprising amarket determined relationship between the second component, i.e. theother currency that is a part of the requested product, and a fourthcomponent, i.e. another currency not part of the requested product and,in one embodiment, the same as the third component/currency. The marketdetermined relationship may include price spreads between the currencypairs.

The correlation processor 1308 is coupled with the identificationprocessor 1306 and is operative to correlate the third and fourthcomponents, e.g. determine that the third and fourth components are thesame, i.e. the same currency, or alternatively, identify a thirdexisting market for a third product comprising a market determinedrelationship between the third and fourth components, such as a Eur/USDor other bridging market.

The market generator 1304 is coupled with the identification processor1306 and the correlation processor 1308 and is operative to generate amarket for the new product by determining at least the undetermined partof the relationship between the first and second components based on thefirst and second existing markets and the correlation between the thirdand fourth components. In one embodiment, the market generator 1304implies the price spread between the first and second components, e.g.currencies, based on the price spreads of the first and second existingmarkets. In one embodiment, the market generator 1304 analyzes themarket depth of each of the first and second markets so as to imply orotherwise compute a corresponding market depth in the generated market,which may then be published to the market participants 104/106, i.e.made public.

For example, wherein the first existing market comprises at least onebuy price and at least one sell price for the first product, the secondexisting market comprises at least one buy price and at least one sellprice for the second product, the market generator 1304 is furtheroperative to determine at least one buy price for the new product basedon the at least one buy price of the first product and the at least onebuy price of the second product, such as the difference or othermathematical relationship therebetween, and determining the at leastsell price of for the new product based on the at least one sell priceof the first product and the at least one sell price of the secondproduct, such as the difference or other mathematical relationshiptherebetween, the market for the new product comprising the determinedat least one buy and sell prices. Effectively, the market generator 1304is further operative to imply the at least one buy price for the newproduct from the at least one buy prices of the first and secondproducts and imply the at least one sell price for the new product fromthe at least one sell prices of the first and second products. Asdescribed, the market generator 1304 may look at the top five buy andsell prices of the first and second products in order to generate andpublish a top five buy and sell prices for the new market.

In one embodiment, the market generator 1304 is further operative tocreate an order book for the new product to allow other marketparticipants to transact in the particular product. The new order bookis then transferred to the Exchange 108. Alternatively, the impliedspread processor 1302 may further include a transaction processor (notshown) coupled with the request receiver (not shown) and the marketgenerator 1304 and operative to complete the transaction by matching therequest to suitable counter-requests in the first and second existingmarkets. These “component transactions” are then submitted to theExchange in lieu of the requested transaction, thereby completing therequested transaction.

In one embodiment the implied spread processor 1302 includes one or moreprocessors (not shown), one or more memories (not shown) and/or otherstorage media coupled with the one or more processors and a networkinterface (not shown) coupled with the one or more processors and anetwork and operative to facilitate communications therebetween and withthe Exchange 108 and market participants 104/106. Each of the marketgenerator 1304, identification processor 1306, and correlation processor1308 may be implemented in hardware, software/logic or a combinationthereof. While various components are discussed in terms of theirdiscrete functions, it will be further appreciated that one or more ofthe described functions may be implemented in a single component or anyone function may be performed by multiple discrete components, orcombinations thereof, and is implementation dependent.

For example, the implied spread processor 1302 may include a processorand a memory coupled with the processor for determining a market for anew product, the new product comprising a relationship between first andsecond components, the relationship between the first and secondcomponents being undetermined at least in part, the system comprising aprocessor and a memory coupled with the processor. The system furtherincludes first logic stored in the memory and executable by theprocessor to identify a first existing market for a first productcomprising a market determined relationship between the first componentand a third component, and identify a second existing market for asecond product comprising a market determined relationship between thesecond component and a fourth component; second logic stored in thememory and executable by the processor to correlate the third and fourthcomponents; and third logic stored in the memory and executable by theprocessor to generate a market for the new product coupled with meansfor identifying and the means for correlating and comprising means fordetermining at least the undetermined part of the relationship betweenthe first and second components based on the first and second existingmarkets and the correlation between the third and fourth components. Inone embodiment wherein the first existing market comprises at least onebuy price and at least one sell price for the first product, the secondexisting market comprises at least one buy price and at least one sellprice for the second product, the third logic is further executable bythe processor to determine at least one buy price for the new productbased on the at least one buy price of the first product and the atleast one buy price of the second product and determining the at leastsell price of for the new product based on the at least one sell priceof the first product and the at least one sell price of the secondproduct, the market for the new product comprising the determined atleast one buy and sell prices.

FIG. 14 depicts a flow chart showing the operation of the system of FIG.13 according to one embodiment. In operation, the process determines amarket for a new product, the new product comprising a relationshipbetween first and second components, the relationship between the firstand second components being undetermined at least in part. The processincludes identifying a first existing market for a first existingproduct comprising a market determined relationship between the firstcomponent and a third component and identifying a second existing marketfor a second existing product comprising a market determinedrelationship between the second component and a fourth component (block1404). In one embodiment, the first, second, third and fourth componentseach comprise a currency, wherein each of the relationships comprising aprice spread between the associated currencies.

The process further includes correlating the third and fourth components(block 1406), such as by determining that the third and fourthcomponents are the same or, alternatively, or in addition thereto,identifying a third existing market for a third existing productcomprising a market determined relationship between the third and fourthcomponents.

The process also includes generating a market for the new product bydetermining at least the undetermined part of the relationship betweenthe first and second components based on the first and second existingmarkets and the correlation between the third and fourth components(block 1408). In one embodiment, wherein the first existing marketcomprises at least one buy price and at least one sell price for thefirst product, the second existing market comprises at least one buyprice and at least one sell price for the second product, the generatingfurther comprises determining at least one buy price for the new productbased on the at least one buy price of the first product and the atleast one buy price of the second product and determining the at leastsell price of for the new product based on the at least one sell priceof the first product and the at least one sell price of the secondproduct, the market for the new product comprising the determined atleast one buy and sell prices. For example, the determining may includeimplying the at least one buy price for the new product from the atleast one buy prices of the first and second products and implying theat least one sell price for the new product from the at least one sellprices of the first and second products. Further, this process may beperformed on the top five buy and sell prices of the first and secondproducts to produce a top five buy and sell price for the new product.These prices may then be published to the market participants 104/106 toallow trading thereof.

In one embodiment, the generating further comprises creating an orderbook for the new product. In another embodiment, the process furtherincludes receiving a request to transact in the new product (block 1402)and completing the transaction by matching the request to suitablecounter-requests in the first and second existing markets for the firstand second existing products (block 1410).

In another embodiment, Intra-Firm Match Avoidance protections areprovided to monitor for and/or prevent a particular entity fromtransacting with itself. The system detects and/or prevents firms ortraders from matching with themselves in any of the central limit orderbook markets. This may be accomplished using information related to theorder at the trader, desk, or firm level of granularity. When anaggressor order is matching the resting book and the opposite order hasbeen deemed to be unmatchable, there are several options: the aggressororder may be cancelled before any matching occurs; or the aggressororder matches normally and any resting order it attempts to match with,which is deemed unmatchable, may be cancelled immediately. In eithercase, appropriate fill and cancellation messages are sent to the partiesinvolved, per normal operations of those actions (order cancel andtrade).

An intra-firm match is a transaction where the same entity iseffectively on both sides, of the transaction, e.g. the same entity hastwo pending opposing orders, a buy and a sell, which match. This canhappen because within any given entity, there are many sub-entitieswhich are individually authorized to place orders with the Exchange andthe sub-entities, or the orders that they place, may not always identifythat they are a part of the larger entity. Further, it is not alwaysclear, based on the orders alone, that particular trading entities, arein fact, sub-entities of the same larger entity. Generally, orders arematched in an Exchange based on the nature and subject of thetransaction, e.g. buy vs. sell for the same specified product at aparticular price. It is further not always clear whether order placed bya given entity, referred to as a proxy entity, are in fact placed onbehalf of another entity. In this case if the order matches with anotherentity that is in fact related to the proxy entity, rather than theunderlying entity, there may be no issue. Accordingly, not allintra-firm matches are undesirable or improper but generally, whereundesirable or improper matches occur, such matches result inunnecessary transaction fees, e.g. the entity could have just tradedinternally rather than incur the costs associated with trading via anExchange, may be counter to the rules of the Exchange or the tradingentity, and/or may have possible legal implications, e.g. thetransactions may violate SEC, accounting or anti-trust rules.Identification of such intra-firm matches is therefore desirable. Onceidentified, various actions may be taken such as canceling thetransaction or merely notifying the parties that originated the order sothat they may internally resolve any systemic problems and/or avoidfuture occurrences. There is currently no automated method for detectingintra-firm matches. Current detection methods rely on post-transactionaudits to identify these events. While such post-transaction detectionmay aid in preventing future occurrences of intra-firm matches, it makesdealing with the specific transactions that have already occurreddifficult.

As discussed above, a given trading entity includes a collection orhierarchy of sub-entities. For example, a given trading entity mayinclude a trading firm, a clearing firm or a trading firm that is also aclearing firm. Within trading/clearing firms, there may be one or moretrading desks, traders, customers, clerks or other sub-entities orcombinations thereof. Any of these entities may act, e.g. place orders,on behalf of the themselves and/or other entities, such as customers orother trading firms. For example a larger trading firm may act as asurrogate for a smaller trading firm. Further, the authority under whicha given entity, or sub-entity thereof, may act may overlap with theauthority granted to another entity or sub-entity. It will beappreciated, that the organization of a given entity as a collectionand/or hierarchy of sub-entities may vary and that all suchorganizations are contemplated. As used herein, any two sub-entities areconsidered to be part of the same entity, or not, based on the intent ofeach sub-entity or the entity to which they belong. For example, twotrading desks of the same trading firm, each trading on behalf of adifferent customer, may not be considered to be part of the same entityand transactional matches between their orders may be permitted. Incontrast, two trading desks of the same trading firm, each trading onbehalf of the trading firm, may be considered part of the same entityand transaction matches between their order may be denied or otherwiseflagged. In addition, an entity, or sub-entity thereof, may explicitlyspecify other entities, or sub-entities thereof, that they wish not totrade with regardless of their affiliation, either by specificallyidentifying the entity or sub-entity they wish to avoid, by specifyingattributes, or the type, of an entity or sub-entity they wish to avoid,or combinations thereof. For example, entities or sub-entities mayspecify who they will or will not trade with based on the creditrisk/rating of the potential counter-party or based on a businessagreement that they have in place, etc. Further, whether twosub-entities are considered to be part of the same entity, or not, mayvary, such as over time. For example, during regular trading hours(“RTH”), two particular sub-entities may be considered part of the sameentity for the purposes of detecting intra-firm matches. However, duringextended trading hours (“ETH”), the same two sub-entities may not beconsidered part of the same entity, allowing for different treatment. Aswill be described below, the determination of sub-entities as being partof the same entity may be implemented so as to control what factorstrigger a match and which do not. Alternatively, or in addition thereto,the actions selected to be performed based on a match may be implementedso as to take certain actions or not, based on other parameters. Forexample, the system may either be configured so as to not flag twoparticular sub entities as being part of the same entity or the systemmay be alternatively configured to take no action if the twosub-entities are determined to be part of the same entity, with the netresult being substantially similar. Preventing the match from occurringas opposed to detecting the match but taking no action may each havetheir own advantages such as for audit or reporting purposes.

The disclosed embodiments detect the occurrence of two sub-entities ofthe same entity attempting to transact, referred to herein as anintra-firm match, analyze the transaction and apply one or more rules,i.e. take one or more actions, to handle the transaction. The action tobe taken may be based on preferences and/or regulations of the Exchange,the participating entities, governing regulations/laws, or combinationsthereof. In one embodiment, the handling of a transaction between twosub-entities of the same entity may depend on where the transactingsub-entities are, organizationally, within the hierarchy of sub-entitiesof the entity, e.g. two sub-entities at the same “level” may or may notbe allowed to transact. Business relationships may be further consideredso as to avoid any nuisance or unnecessary fees, and generally maintaina good relationship between the Exchange and the entities that tradethereon. The selected action(s) may vary dynamically based on otherparameters, such as time of day described above, e.g. RTH or ETH, day ofweek, month, or some varying characteristic of the entities and/orsub-entities involved. For example, during RTH, intra-firm matchtransactions may be blocked whereas during ETH, they are permitted.

Exemplary actions to be taken when an intra-firm match is detected are:take no action and fill both orders; notify one or more of the partiesinvolved and/or the Exchange of the detected intra-firm match where thenotification may or may not identify one or more of the parties to eachother; fill the order pending approval of one or more of the partiesand/or the Exchange; cancel both orders; cancel one of the orders basedon a defined algorithm, such as canceling the incoming/aggressor orderand maintaining the resting order, canceling the smaller order,canceling one of the orders based on a priority, hierarchical or otherattribute of the order; fill as much of each order against othernon-intra-firm-match matching orders, on a priority or non-prioritybasis, and then take a defined action with any unfilled remainder; leavethe orders unfilled, i.e. crossed, on the order book so as to match withother non-intra-firm-match orders (crossed orders are orders at the sameprice on opposite sides of a transaction that would normally match butwhich are prevented from doing so); complete the transaction, i.e. fillboth orders, but either at a lower or zero cost or at a higher cost,possibly dependent on the relationship between the parties and theExchange and the preferences thereof; or combinations thereof. One, or acombination, of these action may be defined as the default action totake, unless otherwise specified or overridden, in an intra-firm matchsituation. For example, no matter what other action is taken, theparties involved and/or the Exchange may be notified that an intra-firmmatch was detected.

FIG. 15 depicts a block diagram of an exemplary system 1500 fordetecting and handling intra-firm matches among market participants104/106 transacting via an Exchange 108 according to one embodiment. Inorder to identify intra-firm matching orders, also referred to asintra-firm matches, the system 1500 needs to be able to identify thesource of a given order so as to be able to determine whether the sameentities are in fact dealing with each other. Once an intra-firm matchis identified, the system 1500 executes one or more defined actionsand/or applies one or more rules, such as stopping the firms frommatching with each other or implementing a priority matching scheme.

The system 1500 includes an intra-firm match detector 1502 coupled withthe matching 110, clearing 112 and settlement 114 functionality of theExchange 108. In particular, the intra-firm match detector 1502 iscoupled with the matching engine 110 so as to intercept potentialintra-firm match transactions, i.e. a first order received from a firsttrading entity/market participant, and a second order received from asecond trading entity/market participant, before they are matched andsubsequently determine what actions are to be taken. In an alternateembodiment, the intra-firm match detector 1502 may be a part of thematching engine 110. The intra-firm match detector 1502 includes anidentity identifier 1504 and a transaction/order processor 1508 coupledwith the identifier 1504. In one embodiment, the intra-firm matchdetector 1502 further includes an identity database 1506 coupled withthe identity identifier 1504. The first and second trading entities mayeach comprise a trading firm, clearing firm, trading desk, trader,customer, clerk, or combination thereof.

The transaction/order processor 1508 is operative to establish that thefirst order is at least partially counter to the second order, i.e. ifthe orders do not match, then the trading entities and theirrelationship are irrelevant for the disclosed functionality since theywill not match. However, if the first and second orders are at leastpartially matching, the identity identifier 1504, coupled with the orderprocessor 1508, is operative to identify whether the first tradingentity is permitted to transact with the second trading entity based ona relationship there between. For example, each order/transaction mayinclude a identification code which may used to identify the tradingentity. In one embodiment, the identification code encodes identityinformation, such as information which identifies the trading firmhierarchy to which the entity belongs, e.g. the identification code maybe a concatenation of multiple codes representative of the hierarchy ofentities to which the given trading entity belongs. The identificationcodes of the various transactions may then be compared to determine ifan intra-firm match exists. In one embodiment, the identification codesare matched and/or compared in an ordered fashion, such as by performinga logical operation on binary representations thereof, on each componentidentification code representative of the hierarchy of entities. Forexample, the codes may be related together using a logical exclusive-orfunction other Boolean logic, the results of which may be used todetermine whether a suitable match exists. The identity identifier 1504may be further programmed with rules as to what constitutes anintra-firm match, such as what portion of the identification codes mustmatch, if less than all.

In an alternate embodiment, the identity identifier 1504 is coupled withan identity database 1506. Identification codes provided in the ordersare used to look up the entities in the database 1506 for subsequentcomparison to determine if a match exists.

Where the first trading entity is related to a third trading entity andthe second trading entity is related to a fourth trading entity, theidentity identifier 1504 is further operative to identify whether thefirst trading entity is permitted to transact with the second tradingentity based on a relationship between the third and fourth entities.For example, the first trading entity may be a sub-entity of the thirdtrading entity and the second trading entity may be a sub-entity of thefourth trading entity. In one embodiment, the first and second tradingentities may be identified by the identity identifier 1504 as beingrelated when the relationship comprises the first and second tradingentities being at least part of a common entity, when the relationshipcomprises the first and second trading entities being the same entity,when the relationship comprises the first and second trading entitiesbeing contractually related to each other, when the relationshipcomprises a specification by one of the first and second tradingentities of the other of the first and second entities, or combinationsthereof. Where one entity specifies that transactions with anotherentity should result in an intra-firm match, the specification mayspecifically identify entities or the specification may be a generalspecification of a category of entities comprising the other of thefirst and second entities, such as a credit rating of entities thatshould or should not cause an intra-firm match.

The transaction/order processor 1508 is coupled with the identityidentifier 1504 and operative to allow the first order to be matched tothe second order where the first trading entity is identified as beingunrelated to the second trading entity and the first order is at leastpartially counter to the second order. The transaction processor 1508 isfurther operative to determine an action to take with respect to thefirst and second orders when the first trading entity is identified asbeing related to the second trading entity. The action may be based onbusiness rules that are stored in the identity database 1506, such asrules associated with either of the trading entities. The rules may bespecified by the Exchange, the trading entities, government regulators,or combinations thereof.

For example, the action may include notifying the first and secondtrading entities of the relation, canceling the first and second orders,matching the first order to the second order, allowing the first andsecond order to be matched to other orders but not to each other, orcombinations thereof. In one embodiment, the action may further includecharging one of a standard transaction fee, a lower transaction fee, ahigher transaction fee or no transaction fee.

In one embodiment the intra-firm match detector 1502 includes one ormore processors (not shown), one or more memories (not shown) and/orother storage media coupled with the one or more processors and anetwork interface (not shown) coupled with the one or more processorsand a network operative to facilitate communications therebetween andwith the Exchange 108 and market participants 104/106. Each of theidentity identifier 1504, transaction/order processor 1508, and identitydatabase 1506 may be implemented in hardware, software/logic or acombination thereof. While various components are discussed in terms oftheir discrete functions, it will be further appreciated that one ormore of the described functions may be implemented in a single componentor any one function may be performed by multiple discrete components, orcombinations thereof, and is implementation dependent.

For example, the of matching a first order received from a first tradingentity with a second order received from a second trading entity mayinclude a processor and a memory coupled with the processor, the systemfurther including: first logic stored in the memory and executable bythe processor to establish that the first order is at least partiallycounter to the second order; second logic stored in the memory andexecutable by the processor to identify whether the first trading entityis permitted to transact with the second trading entity based on arelationship there between; third logic stored in the memory andexecutable by the processor to allow the first order to be matched tothe second order where the first trading entity is identified as beingunrelated to the second trading entity and the first order is at leastpartially counter to the second order; and fourth logic stored in thememory and executable by the processor to determine an action to takewith respect to the first and second orders when the first tradingentity is identified as being related to the second trading entity.

FIG. 16 depicts a flow chart showing the operation of the system of FIG.15 according to one embodiment. The disclosed process relates tomatching a first order received from a first trading entity with asecond order received from a second trading entity wherein the first andsecond trading entities may each comprise a trading firm, clearing firm,trading desk, trader, customer, clerk, or combination thereof. Theprocess includes establishing that the first order is at least partiallycounter to the second order (block 1602) and identifying whether thefirst trading entity is permitted to transact with the second tradingentity based on a relationship there between (block 1604). Wherein thefirst trading entity is related to a third trading entity and the secondtrading entity is related to a fourth trading entity, the identifyingfurther includes identifying whether the first trading entity ispermitted to transact with the second trading entity based on arelationship between the third and fourth entities. The first tradingentity may be a sub-entity of the third trading entity and the secondtrading entity may be a sub-entity of the fourth trading entity. Theidentifying may further include identifying the first and second tradingentities as being related when the relationship comprises the first andsecond trading entities being at least part of a common entity, when therelationship comprises the first and second trading entities being thesame entity, when the relationship comprises the first and secondtrading entities being contractually related to each other, when therelationship comprises a specification by one of the first and secondtrading entities of the other of the first and second entities, orcombinations thereof. Where a specification is provided, thespecification may include identification of a specific entity or ageneral specification of a category of entities, e.g. credit rating,etc., comprising the other of the first and second entities, orcombinations thereof.

The process further includes allowing the first order to be matched tothe second order where the first trading entity is identified as beingunrelated to the second trading entity and the first order is at leastpartially counter to the second order (block 1606) and determining anaction to take with respect to the first and second orders when thefirst trading entity is identified as being related to the secondtrading entity (1608). In one embodiment, the action comprises notifyingthe first and second trading entities of the relation, canceling thefirst and second orders, matching the first order to the second order,allowing the first and second order to be matched to other orders butnot to each other, or combinations thereof. The action may furtherinclude charging one of a standard transaction fee, a lower transactionfee, a higher transaction fee or no transaction fee.

In another embodiment, Universal Pass Through is provided which allowsparties to swap interest rates among currencies where the clearing housetakes over the credit risk/funds transfer mechanism.

In another embodiment, shown in FIG. 5A, Flexible Hybrid CentralCounter-party Cross-Margining or Cross Collateralization is supported.In particular, one-bucket and two-bucket cross-margining orcollateralization processes are combined into a single streamlinedprocess. Cross-Margining or Cross-Collateralization allows for areduction in margin or collateral amount requirements for trading ineither OTC or exchange traded derivatives markets. This reduction ispossible because assessed risk is reduced when offsetting (risk-offsetor “Spreadable”) positions are cleared by the same or affiliated“clearing members” or market participant firms at the cross-marginparticipating central-counterparty clearing organization(s).

In the present embodiment, both one-bucket and two-bucketcross-margining or collateralization processes are combined into a onestreamlined and single process by combining ‘One-pot Approach’ and‘Two-pot Approach’ to support both OTC and exchange traded derivativesclearing transactions. Process 1: 1 Pot Approach is initially achievedwith two or multiple partnering parties. Process 2: 2 Pot Approach isachieved with one or multiple partnering parties dealing withrisk-offset eligible positions after the process 1 is done.

Referring to FIGS. 5B and 5C, the 1 Pot Approach is shown:

-   -   Clearing Transactions Scope Participants: clearing members of        exchange or counter-parties in the OTC market    -   Multiple contracts or products of all types (both OTC and        exchange traded) at different exchanges or counter-parties    -   All Cross-Margin Activity=Joint Cross-Margin/collateral Account        -   Identified with a Separated into Cross-Margin Origin        -   It is separate from participant's normal clearing at            respective clearing organizations, entities or            counter-parties.    -   Only ALLOW Cross-Margin/Collateral Eligible Trades to Clear in        the Joint Cross-Margin/Collateral Accounts        -   Trades executed directly into the Cross-Margin Accounts        -   Positions can be transferred between a normal Clearing            Account and Cross-Margin Clearing/Collateral Account.        -   Separate Position Records/Data is submitted for the            Cross-Margin process Origin    -   Banking Settlement or collateralization only Dedicated to the        Joint Cross-Margin Accounts        -   Treated as Separate Origin        -   Separate Bank Accounts, Wires, Transactions, etc.

Referring to FIG. 5D, the 2 Pot Approach is shown:

-   -   Transactions of Participating Clearing Organizations=Occurs at        Each Clearing Org.+Offset Risk=2 Pot    -   No Joint Cross-Margin Accounts        -   No Separation from Clearing Member's Primary Clearing            Account at respective clearing organizations        -   Hold Collateral in the Same Separate Firm Accounts    -   Each Participating Organization Calculates its PB Requirements,        Offset and Share Offset, Gain & Loss Guarantee Information        -   Positions Remain at each participating organization origin        -   No Need for Position Transfer into Cross-Margin Account        -   No Separate Position Change Submission (PCS) report is            Needed    -   Transparent Transaction        -   For example,    -   CME offers credit on cross-margin eligible contracts for        offsetting positions at the opposite clearing organizations    -   Opposite Clearing Org. will offer credits on their positions.        -   No Dedicated Banking Settlement for Cross-Margin Purposes    -   No Separate Bank Accounts, Wires, Transactions, etc.    -   Transactions become part of current banking transactions.

In the 2 Pot approach, Cross-Margin Offsets are Calculated as follows:Internal Process for Cross-Margin Eligible Product:

-   -   1. Do all Internal Intra-Commodity Spreading.    -   2. Do all Internal Inter-Commodity Spreading.    -   3. Look at the available cross-margin delta positions at other        clearing organizations to sec if additional spreads could be        formed from CME's remaining delta positions.    -   4. Allocate Prioritized Spread Credit to each Clearing        Organization        -   i.e. Multiple organization cross-margin program.        -   Assign Priority from Highest to Lowest spread credit amounts            based on the information from other participating clearing            organizations.        -   Calculate the Spread Allocation based on the priority.

FIG. 5E shows the process for dealing with positions that were notoriginally offset. FIG. 5F shows how cross-margining utilizes X-marginmargin that was not offset. FIG. 5G demonstrates how cross-marginingmatches positions of similar absolute risk at two or more clearingorganizations.

Allocation of Savings on Proportional Basis:

-   -   Cross-Margining with Multiple Organizations,        -   Allocation of its Positions and Margin necessary        -   Allocations Will Optimize Members' Margin Reductions            -   Amounts are First Allocated to Products With Best                Correlations            -   If Equally Correlated, Allocations Are Pro-Rata Based on                Margin Amounts Submitted by Each Clearing Organization

Exchange CME LCH GSCC Eligible Contract Eurodollar Euribor Treasury Eq.Eligible Delta 1000 −700 −500 Spread Credit % 80% 35% Spreads Formed1000 −700 −300 Remaining Delta 0 0 −200

The 2 pot approach offers the advantages of: flexibility in managingcollateral is unaffected using “Two Pot” Approach; avoids legal andoperational complexities of establishing and maintaining joint marginAccounts in a multiple-clearing organization cross marginingenvironment; the ability to pledge margin collateral for liquiditypurposes is unaffected; and there is no operational impact except inperforming an audit trail.

In another embodiment, pricing of the swap legs, using the mid-point inthe spot market is provided, with error handling where the spot marketis illiquid. In particular, as used herein, “Spot” refers to the day onwhich deals agreed today are actually carried out. In the foreignexchange markets, spot is usually two working days ahead; so for dealsconcluded on Tuesday, spot is Thursday; for deals concluded on Friday,spot is Tuesday (unless bank holidays intervene). A spot deal is asimple exchange of two volumes of currency to take place two workingdays ahead—in other words, with a value date of spot. The foreignexchange rates commonly quoted in the media are spot rates—the ratesagreed in today's spot deals. The term “Outright/Forward” refers to asimple Forward exchange of two volumes of currency where the value dateis any date other than spot. The rate for the deal is normally quoted asa premium or a discount (‘negative premium’) on top of the current spotrate. So the formula for the dealt rate (the rate specifying therelationship between the two volumes) is:Dealt Rate=Spot Rate+Premium, orDealt Rate=Spot Rate−Discount

In a swap deal, a volume of one currency is exchanged for a volume of asecond currency. After an agreed period, the transaction is reversed. Itis possible for the volumes in the second ‘leg’ of the transaction todiffer from the first. For example, a deal might specify that at spot:

Bank A pays 5,000,000 US Dollars to Bank B

Bank B pays 7,565,000 Swiss Francs to Bank

A (Rate 1.5130)

. . . and that three months later:

Bank B pays 5,000,000 US Dollars to Bank A

Bank A pays 7,530,000 Swiss Francs to Bank

B (Rate 1.5060)

The difference in the rates of the second currency for the two legs ofthe swap deal arises from differences in the deposit rates for the twocurrencies, and expectations about variations in the spot rates.

In one embodiment, the disclosed system will:

-   -   Price a Spot and Forwards in absolute terms (i.e. the rate); and    -   Price Swap in differential terms.        When a trade on a Swap occurs, the system has the agreed upon        differential between the Spot and the Forward leg. At this        point, the system anchors the Spot for the transaction as the        mid-point between the bid/ask in the current Spot market.

Additionally, four alternative mechanisms for how to assign the legprices to the CME FX Swaps are provided if there are no bid and askprices for a given currency in CME FX Spot:

1. Use Reuters contributor spot FX pages (such as EUR=, JPY=, CAD=,GBP=, CHF=, AUD=) and take the average of the spot bid and askquotations at the time of the trade;

2. Use Reuters Dealing Terminal Quotations (perhaps utilizinginformation from CME GFX) for the target currencies and calculate theaverage of the spot bid and offer to use in assigning SWAP leg prices;

3. Use a combination of Reuters Dealing Terminal Quotations for itsstrong currencies and CME GFX spot resources for the EBS strongcurrencies;

4. Use CME currency futures prices (bid and ask on CME Globex) for thenearby (most active) contract month and use Reuters forward points (or acombination of Reuters and Bloomberg forward points) to the IMM dates tostrip out the synthetic spot bid and ask for pricing the CME SWAP legprices. Simply average the bid and ask of these synthetic spot prices toassign the CME SWAP leg prices. This may be similar to CME trading flooroperations' plans to use an analogous version of this technique to setCME FX futures settlement prices for the expiring months during theone-week rollover period by using the next deferred, moreactively-traded CME FX futures contract prices and forward points toback out the expiring CME FX futures settlement price.) CME tradingfloor operations has a program that could possibly be modified to backout spot bid and asks from CME FX futures prices; or

5. Use the last price in the Spot market, through a certain age. If thelast spot price was too old, this spot price would backstopped by the“daily settlement price” used to determine unrealized gains and losses(thus, never more than 24 hours old). However, number 4 above could workas an alternative for any time there is no spot, and if there are nofutures bids and offers on CME Globex, then it could be backstopped bythe last spot, and if no last spot price that day, could further bebackstopped by the last daily settlement price.

It is therefore intended that the foregoing detailed description beregarded as illustrative rather than limiting, and that it be understoodthat it is the following claims, including all equivalents, that areintended to define the spirit and scope of this invention.

What is claimed is:
 1. A computer implemented method of determining amarket for a product, the method comprising: receiving, by anidentification processor, identification for a new product for which anorder book is not available on an exchange, the new product comprisingfirst and second components; identifying, by the identificationprocessor in response to the receiving, a first available order book fora first available product listed on the exchange and a second availableorder book for a second available product listed on the exchange, thefirst available product comprising the first component and the secondavailable product comprising the second component; correlating, by acorrelation processor coupled with the identification processor, thefirst and second available order books based on one or more componentsof the first and second available products; generating, by a marketgenerator coupled with the identification processor and the correlationprocessor, a new order book for the new product based on thecorrelating; and causing the new product to be listed on the exchangesuch that subsequently received orders to buy or sell the new productare matched based on the new order book or entered into the new orderbook.
 2. The computer implemented method of claim 1 wherein the firstavailable product comprises the first component and a third component,and the second available product comprises the second component and afourth component, the correlating being based on a correlation of thethird component and the fourth component.
 3. The computer implementedmethod of claim 2 where the third component and the fourth component area same component.
 4. The computer implemented method of claim 2 whereinthe third and fourth components are correlated via a third availableorder book for a third available product comprising both of the thirdand fourth components.
 5. The computer implemented method of claim 1wherein the first and second components each comprise a currency.
 6. Thecomputer implemented method of claim 1 wherein the new order book iscapable or reflecting both orders implied by the first and secondavailable order books and outright orders received for the new product.7. The computer implemented method of claim 1 where in the correlatingis based on a transitive relationship between one or more orders to buyor sell in the first available order book and one or more orders to buyor sell in the second available order book.
 8. The computer implementedmethod of claim 1 wherein the first available order book comprises atleast one buy price and at least one sell price for the first availableproduct, wherein the second available order book comprises at least onebuy price and at least one sell price for the second available product,and wherein the step of generating comprises: determining at least onebuy price for the new product based on the at least one buy price of thefirst available product and the at least one buy price of the secondavailable product; and determining the at least sell price of for thenew product based on the at least one sell price of the first availableproduct and the at least one sell price of the second available product.9. A system for determining a market for a product, the systemcomprising: an identification processor coupled with an exchange andoperative to receive identification of a new product for which an orderbook is not available on the exchange, the new product comprising firstand second components; the identification processor being furtheroperative to, in response to the receipt of identification of the newproduct, identify a first available order book for a first availableproduct listed on the exchange and a second available order book for asecond available product listed on the exchange, the first availableproduct comprising the first component and the second available productcomprising the second component; a correlation processor coupled withthe identification processor and operative to correlate the first andsecond available order books based on one or more components of thefirst and second available products; and a market generator coupled withthe exchange, the identification processor, and the correlationprocessor and operative to generate a new order book for the new productbased on the correlation between the first and second available orderbooks, wherein the market generator is further operative to cause thenew product to be listed on the exchange such that subsequently receivedorders to buy or sell the new product are matched based on the new orderbook or entered into the new order book.
 10. The system of claim 9wherein the first available product comprises the first component and athird component, and the second available product comprises the secondcomponent and a fourth component, the correlation processor beingfurther operative to correlate the first and second available orderbooks based on a correlation of the third and fourth components.
 11. Thesystem of claim 10 where the third and fourth components are a samecomponent.
 12. The system of claim 10 wherein the third and fourthcomponents are correlatable via a third available order book for a thirdavailable product comprising both of the third and fourth components.13. The system of claim 9 wherein the first and second components eachcomprise a currency.
 14. The system of claim 9 wherein the new orderbook is capable of reflecting both orders implied by the first andsecond available order books and outright orders received for the newproduct.
 15. The system of claim 9 wherein the correlation processor isfurther operative to correlate the first and second available orderbooks based on a transitive relationship between one or more orders tobuy or sell in the first available order book and one or more orders tobuy or sell in the second available order book.
 16. The system of claim9 wherein the first available order book comprises at least one buyprice and at least one sell price for the first available product,wherein the second available order book comprises at least one buy priceand at least one sell price for the second available product, andwherein the market generator is further operative to generate the neworder book by: determining at least one buy price for the new productbased on the at least one buy price of the first available product andthe at least one buy price of the second available product; anddetermining the at least sell price of for the new product based on theat least one sell price of the first available product and the at leastone sell price of the second available product.
 17. A system fordetermining a market for a product, the system comprising: a processor;and a computer readable storage media coupled with an exchange and theprocessor, the computer readable storage media comprising: first logicexecutable by the processor to receive identification of a new productfor which an order book is not available on an exchange, the new productcomprising first and second components, and, in response to the receiptof identification of the new product, identify a first available orderbook for a first available product listed on the exchange and a secondavailable order book for a second available product listed on theexchange, the first available product comprising the first component andthe second available product comprising the second component; secondlogic executable by the processor to correlate the first and secondavailable order books based on one or more components of the first andsecond available products; and third logic executable by the processorto generate a new order book for the new product based on thecorrelation between the first and second available order books, andwherein the third logic is further operative to cause the new product tobe listed on the exchange such that subsequently received orders to buyor sell the new product are matched based on the new order book orentered into the new order book.
 18. The system of claim 17 wherein thefirst available product comprises the first component and a thirdcomponent, and the second available product comprises the secondcomponent and a fourth component, the second logic being furtherexecutable by the processor to correlate the first and second availableorder books based on a correlation of the third and fourth components,and wherein the first, second, third, and fourth components eachcomprise a currency.
 19. The system of claim 17 wherein the firstavailable order book comprises at least one buy price and at least onesell price for the first available product, wherein the second availableorder book comprises at least one buy price and at least one sell pricefor the second available product, and wherein the third logic beingfurther executable by the processor to generate the new order book by:determining at least one buy price for the new product based on the atleast one buy price of the first available product and the at least onebuy price of the second available product; and determining the at leastsell price of for the new product based on the at least one sell priceof the first available product and the at least one sell price of thesecond available product.
 20. A computer implemented method ofdetermining a market for a product, the method comprising: receiving, byan identification processor, identification of a new product for whichan order book is not available on an exchange, the new productcomprising first and second components; identifying, by theidentification processor in response to the receiving, a first availableorder book for a first available product listed on the exchange and asecond available order book for a second available product listed on theexchange, wherein the first available product comprises the firstcomponent and the second available product comprises the secondcomponent, wherein the first available order book comprises at least onebuy price and at least one sell price for the first available product,wherein the second available order book comprises at least one buy priceand at least one sell price for the second available product;generating, by a market generator coupled with the identificationprocessor and a correlation processor, a new order book for the newproduct by: determining at least one buy price for the new product basedon the at least one buy price of the first available product and the atleast one buy price of the second available product; and determining theat least sell price of for the new product based on the at least onesell price of the first available product and the at least one sellprice of the second available product; and causing the new product to belisted on the exchange such that subsequently received orders to buy orsell the new product are matched based on the new order book or enteredinto the new order book.